Investor Protection and the Value Impact of Stock Liquidity

52 Pages Posted: 22 Aug 2016

See all articles by Tao Huang

Tao Huang

International Business School Suzhou, Xi’an Jiaotong Liverpool University

Fei Wu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Jing Yu

The University of Western Australia - Department of Accounting and Finance

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Date Written: October 17, 2014

Abstract

This paper investigates the effect of investor protection on the value impact of stock liquidity. Using a sample of firms from 41 countries for the period between 1996 and 2010, we show that investor protection is positively associated with the value impact of stock liquidity. This association is robust to various endogeneity tests including a difference-in-differences approach based on a natural experiment and a country-level analysis. Further evidence shows that strong investor protection increases the value impact of liquidity by reducing managerial entrenchment, encouraging informed trading, and enhancing pay-for-performance sensitivity.

Keywords: Firm Value, Stock Liquidity, Investor Protection

JEL Classification: G10, G14, G15

Suggested Citation

Huang, Tao and Wu, Fei and Yu, Jing and Zhang, Bohui, Investor Protection and the Value Impact of Stock Liquidity (October 17, 2014). 29th Australasian Finance and Banking Conference 2016. Available at SSRN: https://ssrn.com/abstract=2825626 or http://dx.doi.org/10.2139/ssrn.2825626

Tao Huang

International Business School Suzhou, Xi’an Jiaotong Liverpool University ( email )

111 Renai Rd.
Suzhou Industrial Park
Suzhou, Jiangsu 215123
China

Fei Wu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Jing Yu (Contact Author)

The University of Western Australia - Department of Accounting and Finance ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen ( email )

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