The liquidity impact on firm values: The evidence of Taiwan's banking industry

Ren Raw Chen, Tung Hsiao Yang, Shih Kuo Yeh*

*Corresponding author for this work

Research output: Contribution to journalJournal Article peer-review

13 Scopus citations


Liquidity plays an important role in financial markets, especially during a financial crisis. New Basel III regulatory framework highlights the importance of liquidity risk management implemented by financial institutions. Moreover, updated International Financial Reporting Standards (IFRS) require the improvements about fair value measurements and reinforce existing principles for disclosures about the liquidity risk associated with financial instruments. Using the liquidity discount model of Chen (2012), we are able to empirically classify Taiwan's financial institutions into three liquidity categories: safe, crisis contagious and vulnerable. Our findings can serve as an early warning signal for liquidity calamity. In addition, we investigate what factors affect firm-specific liquidity discounts for these institutions and conduct a sub-period analysis, which examines whether there is significant liquidity discounts changes before and after the 2008 financial crisis. We find that liquidity discounts change substantially during the financial crisis. Furthermore, we find that liquidity discounts can be attributed to some firm-specific performance.

Original languageEnglish
Pages (from-to)191-202
Number of pages12
JournalJournal of Banking and Finance
StatePublished - 09 2017
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2016 Elsevier B.V.


  • Financial institutions
  • Liquidity discount
  • Liquidity risk
  • Liquidity vulnerability


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