Does Exposure to Foreign Competition Affect Stock Liquidity? Evidence from Industry-Level Import Data
70 Pages Posted: 12 Jan 2017 Last revised: 14 Dec 2017
Date Written: December 5, 2017
We document a negative association between foreign competition and stock liquidity. Our results are robust to addressing endogeneity concerns. We identify deterioration in the information environment in response to an increase in foreign competition as the channel behind the main result. Specifically, we find that the negative association is more evident among firms that are more susceptible to the negative consequences of foreign competition and firms that are poorly monitored and have lower analyst coverage. Our paper is the first to highlight the unintended consequences of trade liberalization on financial markets.
Keywords: Stock Liquidity, Foreign Competition, Import Tariff
JEL Classification: G15, G31, G34
Suggested Citation: Suggested Citation