The Cost of Stock Trading to Firms

@inproceedings{Zucchi2016TheCO,
  title={The Cost of Stock Trading to Firms},
  author={Francesca Zucchi},
  year={2016}
}
I study the effects of stock trading costs into a dynamic corporate finance model with financing frictions. When trading entails a cost, the issuing firm needs to pay an illiquidity premium to shareholders, which increases the firm's cost of capital and the opportunity cost of cash. The illiquidity premium leads to a decrease in the firm's target cash, exacerbates financial constraints, increases default risk, and reduces firm value. This firm's response can feed back into trading costs and… Expand

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