Corporate Investment and Stock Liquidity: Evidence on the Price Impact of Trade
42 Pages Posted: 9 Feb 2017
Date Written: December 2016
We document that corporate investment contributes to stock liquidity. This study demonstrates a positive relationship between abnormal corporate investment and stock liquidity in the crosssection. Moreover, stock liquidity improves more apparently for firms with financial constraints. Our robustness check confirms that the existing regularities cannot explain the current finding. This analysis suggests that corporate investment decreases the risk of a firm and that a change in the risk affects the behavior of a market maker, leading to an increase in stock liquidity.
Keywords: Stock Liquidity, Corporate Investment, Financial Constraints
JEL Classification: G14, G31
Suggested Citation: Suggested Citation