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1 – 10 of over 9000Negative 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…
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.
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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.
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Mohammed Bajaher and Fekri Ali Shawtari
This study aims to examine the influence of stock liquidity on the trade credit of publicly listed companies in Saudi Arabia.
Abstract
Purpose
This study aims to examine the influence of stock liquidity on the trade credit of publicly listed companies in Saudi Arabia.
Design/methodology/approach
In this study various econometric models were used to test the data of 900 firms listed in Saudi Arabia during the period of 2010–2019.
Findings
The robust results of the various econometric models indicate that firms are more willing to offer trade credit to customers when stock liquidity is greater; however, they are less likely to rely on obtaining more payables from suppliers. The findings further indicate that payables and receivables are indeed related, but not exclusively, in the sense that more payables lead to more receivables. The study also reveals a pattern of persistence in payables and receivables during the period of study.
Research limitations/implications
The sample of the present study is only made up of Saudi listed companies. Future research could extend the sample of this study taking into account listed firms in the Middle East and North Africa (MENA) region as a whole so as to gain more insights from the entire region including oil-producing and non–oil-producing countries. More studies are needed to further examine the impact of alternative options for credit access and their linkage to stock liquidity. Finally the difference in difference (DiD) method of analysis as quasi experimental method can be another extension of this research.
Practical implications
The findings would provide implications for managers and investors by recognizing the potential role of stock liquidity in affecting trade credit and understanding the association between the stock liquidity and trade credit. Management of the firms should look for the ways to enhance the stock liquidity of the firms so as to help in reducing the extreme debts usage and therefore, alternative source of funds can be available accordingly. Once the advantage of stock market is identified, firms' managers should search for chances and policies that can promote stock liquidity and hence make use of the advantages of being liquid.
Originality/value
This paper provides new evidence from the emerging market, particularly the Saudi Arabia. The attempt is one of the first in the region to broaden the knowledge about the effects of stock liquidity on trade credit. It provides market participants with insights on the role of stock liquidity in financial flexibility.
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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…
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.
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Javed Khan, Shafiq Ur Rehman and Inayat Khan
This study investigates the impact of board characteristics on the stock liquidity of Pakistani listed non-financial firms for the period 2007–2016.
Abstract
Purpose
This study investigates the impact of board characteristics on the stock liquidity of Pakistani listed non-financial firms for the period 2007–2016.
Design/methodology/approach
The study uses fixed-effects regression model on a sample of 170 non-financial firms listed on the Pakistan Stock Exchange for regressing the impact of board attributes on stock liquidity while for addressing the endogeneity two-stage least-square (2SLS) and lagged structure models are used.
Findings
The study finds that board meetings (BM), directors' attendance (DAT) at BM, board gender diversity, the number of board subcommittees (NBC) and board foreign diversity (BFD) positively affect stock liquidity. Checking the robustness through 2SLS and lagged structure models, it is suggested that the findings are robust to the problem of endogeneity.
Practical implications
Outcomes of the study signify the role of novel board attributes in improving the stock liquidity which has implications for investors, the board of directors and policymakers.
Originality/value
The authors are the first to investigate the impact of novel board attributes–BFD, directors' remuneration (DR), DAT and the number of board sub-committees on stock liquidity. Up to the best of researchers' knowledge, these board attributes have never been examined before in relation to stock liquidity.
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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 and…
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.
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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 liquidity…
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.
Abbas Ali Daryaei and Yasin Fattahi
This study is primarily aimed at investigating the asymmetric impact of institutional ownership on the relationship between stock liquidity and stock return. It was conducted by…
Abstract
Purpose
This study is primarily aimed at investigating the asymmetric impact of institutional ownership on the relationship between stock liquidity and stock return. It was conducted by testing the hypotheses regarding efficient monitoring and adverse selection from Tehran Stock Exchange (TSE).
Design/methodology/approach
Using a panel smooth transition regression model and selecting 183 firms for the period from 2009 to 2019 from TSE, this study examined the data to explore the asymmetric impact of institutional ownership on the relationship between stock liquidity and stock return.
Findings
The results show a positive impact by institutional ownership on the relationship between stock liquidity and stock return in the first regime (threshold level 39%), whereas in the second regime, there is a negative impact by institutional ownership on the relationship between stock liquidity and stock return. Furthermore, the firms were divided into two groups based on the market value. The first group includes those with a market share less than the mean total market value of the sample. The second group includes firms with a market share higher than the mean total market value of the sample (large firms). The results illustrate that the threshold level is 32% and 44% for the first and second groups, respectively.
Originality/value
The findings of this study suggest that institutional ownership theories require closer inquiry.
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Fatima N. Ali Taher and Mohammad Al-Shboul
This paper examines the impact of dividend policy on stock market liquidity, and whether the dividend payouts has an asymmetric effect on stock liquidity.
Abstract
Purpose
This paper examines the impact of dividend policy on stock market liquidity, and whether the dividend payouts has an asymmetric effect on stock liquidity.
Design/methodology/approach
A multivariate panel-data regression analysis is conducted for a sample of the largest 411 nonfinancial US firms. Three main hypothesis are tested: (1) whether dividend payouts impact affect stock liquidity, (2) whether low and high dividend payments can asymmetrically effect on stock liquidity and (3) whether the presence of the GFC has an impact the relationship between dividend payments and stock liquidity.
Findings
The study finds that dividend policy is adversely associated with stock liquidity. This supports the prediction of the liquidity-dividend hypothesis. The authors also report that stock liquidity asymmetrically responds to changes in dividend payouts, confirming the prediction of the dividend-signaling approach. More specifically, higher dividend payments decrease stock liquidity by a lower magnitude than the increase in stock liquidity resulting from lower dividend payments. Finally, the presence of the GFC weakened the relationship between dividend payments and stock liquidity.
Research limitations/implications
The paper can help in performing future research by using different dataset covering the COVID-19 crisis.
Practical implications
The paper allows market participants to better understand the impact of dividend policy and its asymmetric effects on stock liquidity. The authors’ analyses can direct investors and regulators to adopt new supervisory devices to create an appropriate level of dividend payouts that helps to effectively support the level of stock liquidity.
Social implications
The paper intends to support the business community and to make strong contributions to the economic development and the welfare of the community.
Originality/value
The originality comes from its new evidence as it can help in assessing the importance of dividend policy and its asymmetric impact on stock liquidity in the full sample and during the GFC. The paper is helpful in performing future analyses using a new sample period for another set of data as well as accounting for COVID-19 pandemic crisis.
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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 liquidity…
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.
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