Journal of Financial Stability Vol. 50 2020
Illiquidity as a signal
Abstract
We propose a theory of corporate liquidity management in which signaling through illiquidity is cheaper than signaling through “skin in the game.” This causes ex post liquidation of worthy projects even when there are enough aggregate resources available for their continuation. We examine the policy remedies for this distortion and consider their consequences for the supply of liquidity, interest rate policy, and subsidies.
- DOI
- 10.1016/j.jfs.2020.100773
- Volume
- 50
- Pages
- 100773
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref