Liquidity Urban Versus strongRuralstrong Firms.pdf

Liquidity: Urban Versus Rural Firms Forthcoming in the Journal of Financial Economics Tim Loughran Mendoza College of Business University of Notre Dame Notre Dame, IN 46556-5646 574.631.8432 voice Loughran.9@ Paul Schultz Mendoza College of Business University of Notre Dame Notre Dame, IN 46556-5646 574.631.3338 voice Schultz.19@ January 14, 2005 Abstract: Our paper examines the impact of geographic location on liquidity for U.S. rural- and urban-based companies. Even after adjusting for size and other factors, rural firms trade much less, are covered by fewer analysts, and are owned by fewer institutions than urban firms. Trading costs are higher for rural Nasdaq firms, and volume that can be attributed to marketwide factors is lower for rural stocks. The findings add to our understanding of the way that access to information and familiarity affect liquidity. JEL Classification: G10; G11; G14 Keywords: Liquidity; Trading costs; Geographic location * We would like to thank John Affleck-Graves, Robert Battalio, Shane Corwin, Peter Easton, Kewei Hou, George Korniotis, Alok Kumar, Jennifer Marietta-Westberg, Rex Thompson, Atakin Yalcin, and especially Bill McDonald