Agency Costs and Strategic Speculation in the U.S. Stock Market
81 Pages Posted: 6 Sep 2015 Last revised: 25 Jan 2022
Date Written: January 24, 2022
Abstract
This study investigates the notion that agency-driven information asymmetry about a firm may affect its stock liquidity. I postulate that less uncertainty about managerial agency problems may enhance liquidity provision --- by lowering dealers' perceived adverse selection risk from trading with better-informed speculators. Consistent with my conjecture, I find that the staggered adoption of antitakeover provisions across U.S. states in the 1980s and 1990s --- a plausibly exogenous shock unambiguously reducing the threat of (and speculators' information advantage about) value-enhancing intervention --- robustly improves the stock liquidity of affected firms relative to peer firms, especially at prior high fundamental or agency uncertainty and poor governance.
Keywords: Corporate Governance; Agency Costs; Takeover Threat; Investor Activism; Liquidity; Strategic Trading; Price Formation; Stock Markets
JEL Classification: D22, G14, G34
Suggested Citation: Suggested Citation