Evidence Of Excess Market Frictions For Small Public Firms

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Executive Summary

As done in prior literature, the authors first relate the theory of liquidity and asset pricing to the standard theory of an asset pricing in frictionless markets. They then review the more cited frictions that beset the market causing various degrees of illiquidity and make the argument that public ownership in small firms constitutes an excess market friction. They isolate the effect of this friction in their sample to prove that it exists, via the statistical significance of their findings and to support theory in prior literature that says that buyers anticipate this fiction with respect to future transactions and apply an appropriate discount.

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