The purpose of this paper is to establish a link among (1) the nature of the capital market from which a firm secures its investment funds, (2) the firm's chosen level of financial disclosure, (3) the firm's cost of capital, (4) the extent of its residual agency problems, and (5) the extent of insider trading in its shares, in a model in which the costs and benefits associated with disclosure are endogenous. The nature of the capital market is characterized in our discussion by the potential liquidity needs of investors from whom capital is raised. The level of disclosure is determined by trading off a production efficiency effect and a compensation subsidy effect, both of which fall with increased disclosure, against a market illiquidity effect and its effect on the cost of capital, both of which also fall with increased disclosure. Production efficiency falls because more disclosure means less information about the manager's action is impounded in price, so that price-based