Question 7: (Lecture 7 and 9)

How does the life-cycle of the firm influence which types of equity investors the firm can attract? Explain your answer.

Bid-ask spreads apply not only to publicly traded shares, but also to shares traded between private equity investors. Based on the life-cycle of the firm Question 4 above, which periods of investment transactions across the life-cycle of the firm do you expect to generate wider bid-ask spreads? Which do you expect will generate narrower bid-ask spreads? Explain your answers.

What do the above differences in bid-ask spreads across different stages of the life-cycle of the firms tell us about liquidity risk inherent in different types of investments that underlie different stages of firm life-cycle? Explain your answers.