Mikhail Pevzner

Asset Liquidity, and Stock Liquidity

We study the relation between asset liquidity and stock liquidity. Our model shows that the relation may be either positive or negative depending on parameter values. Asset liquidity improves stock liquidity more for firms that are less likely to reinvest their liquid assets (i.e., firms with less growth opportunities and financially constrained firms). Empirically, we find a positive and economically large relation between asset liquidity and stock liquidity. Consistent with our model, the relation is more positive for firms that are less likely to reinvest their liquid assets. Our results also shed light on the value of holding liquid assets.

Managerial Decisions, Asset Liquidity, and Stock Liquidity

We predict a positive relationship between the liquidity of the firms assets and the liquidity of its stock. This relationship depends on market expectations regarding the deployment of the firms liquid assets. Thus our hypothesis links stock liquidity to managerial actions that change the liquidity of the firms assets, such as investment, financing, and payout. Consistent with our prediction, we find that after controlling for firm fixed effects, a one standard deviation increase in asset liquidity increases stock liquidity by 14.5%. The relation is stronger when the manager is less likely to convert liquid assets into illiquid assets such as for low market to book and low capital expenditure firms, during economic recessions, and when expected payout is high. Apart from linking corporate finance decisions to stock liquidity, the analysis also promotes a new rationale for several empirical regularities such as the commonality in stock liquidity, and the improvement in stock liquidity following equity issuances.

Information in Financial Statement Misstatements at the Engagement Partner Level: A Case for Engagement Partner Name Disclosure?

Using data from Taiwan, where a long history of engagement partner performance is available, we examine the reputational consequences that engagement partners suffer for having a recent history of past audit failures. We find that when an engagement partner’s recent history of poor audit quality is observable to audit clients, they are more likely to lose clients and are less likely to be reassigned to serve other clients of the audit firm over the next five years. We also find that these engagement partners are more likely to stop serving as engagement partners in the next five years, and those who remain in client service experience a re-allocation of assignments (both as a lead engagement partner and as a concurring (second) partner). Additionally, the clients that these partners continue to serve exhibit increased risk. Overall, our findings suggest that an engagement partner’s prior audit quality influences clients’ and audit firms’ engagement partner selection. The results suggest that audit clients can obtain valuable information from partner name disclosures and that audit firms signal a commitment to quality by managing engagement partner assignments.