Corporate Investment and Stock Liquidity: Evidence on the Price Impact of Trade

42 Pages Posted: 9 Feb 2017

See all articles by Moonsoo Kang

Moonsoo Kang

CUNY Brooklyn College

Wei Wang

Cleveland State University

Chanyoung Eom

Hanyang University Business School - Department of Finance

Date Written: December 2016

Abstract

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

Kang, Moonsoo and Wang, Wei and Eom, Chanyoung, Corporate Investment and Stock Liquidity: Evidence on the Price Impact of Trade (December 2016). Review of Financial Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2913015

Moonsoo Kang (Contact Author)

CUNY Brooklyn College ( email )

2900 Bedford Avenue
Brooklyn, NY 11210
United States

Wei Wang

Cleveland State University ( email )

Cleveland, OH 44115
United States

Chanyoung Eom

Hanyang University Business School - Department of Finance ( email )

222, Wangsimni-ro
Seongdong-gu
Seoul

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