Investor Protection and Firm Liquidity

Posted: 10 Apr 2002

See all articles by Paul Brockman

Paul Brockman

Lehigh University - College of Business

Dennis Y. Chung

Simon Fraser University


The purpose of this study is to investigate the relation between investor protection and firm liquidity. We posit that less protective environments lead to wider bid-ask spreads and thinner depths because they fail to minimize information asymmetries. The Hong Kong equity market provides a unique opportunity to compare liquidity costs across distinct investor protection environments, but still within a common trading mechanism and currency. Our empirical findings verify that firm liquidity is significantly affected by investor protection. Regression and matched-sample results show that Hong Kong-based equities exhibit narrower spreads and thicker depths than their China-based counterparts.

JEL Classification: G3, N2

Suggested Citation

Brockman, Paul and Chung, Dennis Y., Investor Protection and Firm Liquidity. Journal of Finance, Forthcoming. Available at SSRN:

Paul Brockman

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Dennis Y. Chung (Contact Author)

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6

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