State Ownership and Stock Liquidity: Evidence from Privatization
67 Pages Posted: 13 Jun 2017 Last revised: 29 Oct 2020
Date Written: February 14, 2019
We provide unique firm-level evidence of the relation between state ownership and stock liquidity. Using a broad sample of newly privatized firms (NPFs) from 53 countries over the period 1994–2014, our study identifies a non-monotonic association between state ownership and stock liquidity. The inverse U-shaped relation is consistent with trade-offs between costs and benefits of state ownership and suggests an optimal level of government shareholdings that maximizes stock liquidity of NPFs. We further identify that the inflection point from the cost/benefit trade-off is contingent upon characteristics of the nation’s institutional environment.
Keywords: Privatization, government ownership, stock liquidity, valuation, cost of capital
JEL Classification: G32, G34, G35
Suggested Citation: Suggested Citation