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Firm Characteristics as Cross‐sectional Determinants of Adverse Selection
Author(s) -
Hegde Shantaram P.,
McDermott John B.
Publication year - 2004
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.0306-686x.2004.00568.x
Subject(s) - adverse selection , transparency (behavior) , market liquidity , explanatory power , business , selection (genetic algorithm) , sample (material) , monetary economics , economics , actuarial science , finance , philosophy , chemistry , epistemology , chromatography , artificial intelligence , political science , computer science , law
We analyze the role of firm characteristics in determining the extent of adverse selection, and therefore liquidity, in securities markets. After controlling for the effects of the well‐established determinants of adverse selection, we find evidence that a firm's ratio of plant, property, and equipment to total book assets and its status as a public utility have additional explanatory power. To the extent that these variables are reasonable proxies for the firm's transparency of assets and regulatory environment, we assert these factors contribute to the adverse selection cost of transacting for our sample of NYSE listed S&P 500 firms.