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Article

Hamid Uddin

Negative relationship between the return of a stock and its liquidity suggests that the illiquid stocks are riskier than liquid stocks. Thus, researchers tend to include…

Abstract

Purpose

Negative relationship between the return of a stock and its liquidity suggests that the illiquid stocks are riskier than liquid stocks. Thus, researchers tend to include the stock liquidity as a variable in asset pricing models, where the stock and market liquidities are usually considered as independent. The purpose of this paper is to reexamine the relationship between the return of a stock and its liquidity by using a relative measure that links the individual stock liquidity with market‐wide liquidity.

Design/methodology/approach

Multivariate regressions are employed to examine the effect of relative market liquidity on the stock return while controlling the effects of other factors.

Findings

Negative relationship between the stock return and liquidity is confirmed, but the relationship is not linear. It is found that the relative measure of liquidity is not a substitute, but complement to other liquidity measures used in prior studies. It is also found that fluctuation in relative stock liquidity does not positively affect the return.

Research limitations/implications

The study is conducted on New York Stock Exchange and American Stock Exchange exchanges using monthly data. The robustness tests using the daily or weekly data are not conducted.

Practical implications

Findings may suggest that investors do not seriously concern about the fluctuations of individual stock liquidity, provided that the stock liquidity is higher than the average market liquidity.

Originality/value

For the first time, the liquidity risk is tested using a relative measure instead of an absolute measure. Since fluctuation in stock liquidity does not positively affect the return, a new question arises whether the variability in liquidity can reflect the liquidity risk.

Details

Studies in Economics and Finance, vol. 26 no. 1
Type: Research Article
ISSN: 1086-7376

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Article

Pallab Kumar Biswas

Grounded in lemon market theory, this paper aims to examine the influence of corporate governance (CG) on stock market liquidity in Bangladesh, where stock market…

Abstract

Purpose

Grounded in lemon market theory, this paper aims to examine the influence of corporate governance (CG) on stock market liquidity in Bangladesh, where stock market manipulation because of speculative trading is a common concern.

Design/methodology/approach

This study is based on a sample of 2,420 firm-year observations covering all non-financial firms in Bangladesh from 1996 to 2011.

Findings

This study’s results show a significant relationship between governance and liquidity within firms over time. In particular, within firms, when governance quality increases, liquidity significantly improves. For instance, a rise in the governance quality by one standard deviation decreases the illiquidity ratio by 55.97%. The results are unlikely to be confounded by endogeneity.

Practical implications

The results have important policy implications for security regulators, investors, traders and managers. The results support the current regulatory trend of strengthening CG practices in the listed firms in Bangladesh.

Originality/value

This study contributes to the understanding of the role of effective firm-level CG on stock liquidity in the context of an emerging country. Consistent with prior research mostly conducted in the advanced economies, it provides further empirical support that higher CG quality reduces the information asymmetry problem and enhances stock liquidity even in a speculative market.

Details

Accounting Research Journal, vol. 33 no. 2
Type: Research Article
ISSN: 1030-9616

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Article

Nadia Loukil, Ouidad Yousfi and Raissa Yerbanga

The purpose of this paper is to examine the gender diversity on boards and its effect on stock market liquidity in French boardrooms.

Abstract

Purpose

The purpose of this paper is to examine the gender diversity on boards and its effect on stock market liquidity in French boardrooms.

Design/methodology/approach

Using a sample of French firms between 2002 and 2012 listed on the Paris Stock Exchange (SBF120), the study uses ordinary least squares and three-stage least squares (3SLS) regressions to address endogeneity concerns on the board gender diversity.

Findings

The results show that stock market liquidity is positively and significantly associated with the presence of women directors. The authors find that investors’ decisions vary according to their positions in the board: women independent members decrease illiquidity costs, while the presence of female inside directors increases daily trading volume. In addition, the presence of female inside directors increases the firm’s ability to implement better strategies that cope with economic, social and environmental constraints which leads investors to positively react. Surprisingly, the presence of female independent directors reduces company involvement in sustainable development projects.

Practical implications

The empirical findings contribute to the current debate on the benefits of gender diversity on corporate boards and the effectiveness of gender-quota laws. It shows that appointing insider female’ directors incite investors to trade more stocks while appointing independents ones reduces their trading costs.

Social implications

This paper shows that the benefits of female directors appointing depend on their independence of management team.

Originality/value

This study addresses the endogeneity between stock market liquidity, corporate governance and gender diversity. It is the first study to distinguish between the effects of women inside and independent directors on investors’ trading decisions.

Details

Corporate Governance: The International Journal of Business in Society, vol. 19 no. 4
Type: Research Article
ISSN: 1472-0701

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Article

Muhammad Umar and Gang Sun

The purpose of this paper is to explore the determinants of three different types of bank liquidity: funding liquidity, liquidity creation, and stock liquidity in emerging markets.

Abstract

Purpose

The purpose of this paper is to explore the determinants of three different types of bank liquidity: funding liquidity, liquidity creation, and stock liquidity in emerging markets.

Design/methodology/approach

It uses an extensive set of data from all the listed banks of Brazil, Russia, India, China, and South Africa, collectively known as the BRICS countries, spanning the period 2002-2014. Multiple linear regression has been used to estimate the coefficients of the determinants.

Findings

In case of emerging markets, bank size is not a determinant of different types of liquidity, except funding liquidity. Besides, the recent financial crisis had an impact on funding liquidity as well as “cat nonfat” measure of liquidity creation but it did not affect “cat fat” measure and stock liquidity. The variation in funding liquidity is also explained by the profitability and the riskiness of the bank. Effective interest rate, national savings rate, and inflation rate are also the determinants of funding liquidity. Bank-specific determinants of liquidity creation include bank leverage and profitability, and macroeconomic determinants include stock market index, effective interest rate, and unemployment rate. The variation in stock liquidity of the bank is explained by profitability and price of stocks, trading volume, volatility of stock returns, and percentage change in real gross domestic product. Neither market capitalization nor stock market index is the determinant of stock liquidity of the banks.

Research limitations/implications

This study uses the data from publically listed banks only.

Practical implications

The findings of this study may be used by the policy makers and bank managers in the emerging markets to design better policies and to strengthen the banking system to avoid financial turmoil in future.

Originality/value

Most of the existing studies focus on bank liquidity in developed countries and studies aiming on emerging countries are rare. The existing studies focus more on funding liquidity and liquidity creation but to the best of the authors’ knowledge, none of the studies analyze the determinants of banks’ stock liquidity. So, this study bridges the above mentioned gaps by focusing on bank liquidity in emerging markets, and exploring the determinants of the stock liquidity of the banks.

Details

China Finance Review International, vol. 6 no. 4
Type: Research Article
ISSN: 2044-1398

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Article

Yin Yu-Thompson, Ran Lu-Andrews and Liang Fu

This paper aims to perform empirical analysis to test whether less severe agency conflict between managers and controlling shareholders may improve family firms’ corporate…

Abstract

Purpose

This paper aims to perform empirical analysis to test whether less severe agency conflict between managers and controlling shareholders may improve family firms’ corporate and stock liquidity, compared to non-family firms.

Design/methodology/approach

The authors use the ordinary least square and two-stage generalized method of moments regression analyses. They also use match-paired design for robustness check.

Findings

Focusing on Standard & Poor’s 500 firms, the authors find that family firms are more conservative by hoarding more corporate liquid assets (as measured by accounting balance sheet liquidity ratios) than their peer non-family firms to prevent underinvestment from external costly finance. These family firms also exhibit higher level of stock liquidity and lower liquidity risk as measured by effective bid–ask spread than non-family firms. The results are consistent with the motivation that organizations (i.e. family firms in this study) whose shareholders can efficiently monitor that their managers are associated with higher level of corporate liquidity and stock liquidity, and lower level of liquidity risk.

Originality/value

This study contributes to the literature on liquidity (both corporate liquidity and stock liquidity) and ownership structure, more broadly corporate governance. It provides insights into corporate and stock liquidity within a unique ownership context: family firms versus non-family firms. Family firms in the USA are subject to both Type I (agency problems arising from the separation of ownership and control) and Type II agency problems (agency conflict arising between majority and minority shareholders). It is an ongoing debate whether family firms suffer more or less agency problems from one type versus the other than non-family firms. The finding that family firms have higher corporate and stock liquidity is consistent with that family firms being subject to less severe agency conflict due to separation of ownership from control.

Details

Review of Accounting and Finance, vol. 15 no. 2
Type: Research Article
ISSN: 1475-7702

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Article

Donald R. Fraser, John C. Groth and Steven S. Byers

This paper examines and updates an earlier study of the liquidity of an extensive array of common stocks traded on NYSE/ASE/NML‐NASDAQ. It reports apparent variances in…

Abstract

This paper examines and updates an earlier study of the liquidity of an extensive array of common stocks traded on NYSE/ASE/NML‐NASDAQ. It reports apparent variances in liquidity due to trading location and other variables. The paper suggests causes for these differences.

Details

Studies in Economics and Finance, vol. 17 no. 1
Type: Research Article
ISSN: 1086-7376

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Article

Zhiqiang Ye, Zhi Zhang and Songlian Tang

The purpose of this paper is to test the relationship between stock dividends policy and liquidity of ex ante announcement to improve the traditional stock dividends…

Abstract

Purpose

The purpose of this paper is to test the relationship between stock dividends policy and liquidity of ex ante announcement to improve the traditional stock dividends liquidity hypothesis.

Design/methodology/approach

The authors examine a sample of 2,088 which matching stocks between having stock dividends policy and having no dividends policy during 1999-2012 in Chinese listed firms. Using the multiple liner regression, the authors empirically tests the relationship between the possibility, payout ratio and timing choice of stock dividends and the liquidity of ex ante announcement.

Findings

The authors find that the possibility of stock dividends policy has negative relationship with liquidity, and the relationship of stock dividends and liquidity of ex ante announcement is influenced by the time choice of stock dividends.

Originality/value

This paper study the reason of stock dividends policy from the perspective of liquidity and improve the traditional stock dividends liquidity hypothesis.

Details

China Finance Review International, vol. 5 no. 3
Type: Research Article
ISSN: 2044-1398

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Article

Guojin Chen, Aihuan Xu and Xiangqin Zhao

The aim of this paper is to empirically analyze the source of commonality in liquidity change in China's stock market.

Abstract

Purpose

The aim of this paper is to empirically analyze the source of commonality in liquidity change in China's stock market.

Design/methodology/approach

This paper used two‐step test method in Coughenour and Saad and empirically tested the relationship between institutional investors' involuntary trading behaviors and commonality in liquidity change in China's stock market.

Findings

The results showed that to take the open‐end fund as a representative of institutional investors, their involuntary trading behaviors were an important source of commonality in liquidity change in China's stock market.

Originality/value

For a long time, the domestic researchers have ignored the study about the source of commonality in liquidity change in China's stock market. But, this study's conclusion expanded the explanation about the source of commonality in liquidity change in China's stock market from a new point of view that the demand‐side explanation. Because there is no market‐maker trading behaviors in China's stock market, the paper cannot explain the source of commonality in liquidity change in China's stock market from the point of view of the supply‐side explanation.

Details

China Finance Review International, vol. 3 no. 1
Type: Research Article
ISSN: 2044-1398

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Article

William Mbanyele

The purpose of this study is to examine the role of board networks in promoting stock liquidity when there is high economic policy uncertainty using a sample of Brazilian…

Abstract

Purpose

The purpose of this study is to examine the role of board networks in promoting stock liquidity when there is high economic policy uncertainty using a sample of Brazilian firms from 2002 to 2015.

Design/methodology/approach

The study employs the ordinary least squares estimation method with standard errors clustered at the firm level for preliminary analysis, besides the study employs the two-step GMM dynamic estimation method to deal with potential endogeneity issues.

Findings

First, the findings show that economic policy uncertainty disproportionately contributes to stock illiquidity and the impact is mainly prominent for high risky companies, small firms and firms in competitive industries. Second, the author provides evidence that board networks promote stock liquidity more via the information channel when economic policy uncertainty is very high.

Practical implications

Given the adverse effects of economic policy uncertainty on stock liquidity, governments need to swiftly communicate and implement policies that affect the capital market to avoid the drying up of liquidity, which is exacerbated by communication or implementation lags. Also, there is a need for the regulators to continuously encourage the inclusion of independent directors in boards, which helps to increase board monitoring capacity and the firms' ability to respond to changes in the external environment.

Originality/value

Unlike other studies that focus on the adverse effects of economic policy uncertainty on firm outcomes, the novel contribution is that the author uncovers the role of board networks in mitigating the negative effects of economic policy uncertainty on stock liquidity.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

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Article

Liguang Zhang, Wanyi Chen and Ning Hu

The main purpose of this study is to examine whether economic policy uncertainty affects the stock liquidity. Furthermore, this study explores the influencing factors…

Abstract

Purpose

The main purpose of this study is to examine whether economic policy uncertainty affects the stock liquidity. Furthermore, this study explores the influencing factors, transmission mechanism and solution path between economic policy uncertainty and the stock liquidity.

Design/methodology/approach

A data set comprising 97,729 firm-quarter observations of Chinese firms with A-shares listed on the Shenzhen and Shanghai stock exchanges was selected, China's economic policy uncertainty was measured by using the China Economic Policy Uncertainty Index and the impact of economic policy uncertainty on the stock liquidity over the period 2004–2017 was empirically tested. The empirical analysis was based on ordinary least square regression model, and mediation and moderation effect models were used in the further analysis.

Findings

The empirical results show that the higher the economic policy uncertainty, the lower the stock liquidity, which is more significant in firms with an opaque information environment, less investor attention and weak risk resistance ability. The authors argue that the transmission mechanism can be explained by the quality of information disclosure and investor sentiment. Moreover, the negative impact of economic policy uncertainty on the stock liquidity can be mitigated by increasing voluntary disclosures.

Originality/value

This study enriches the literature on factors affecting the stock liquidity from the perspective of macroeconomic policy and provides a reference for policymakers to formulate relevant measures to improve the stock liquidity in emerging markets.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

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