The Bright Side of Financial Fragility

64 Pages Posted: 8 Jan 2021

See all articles by Massimo Massa

Massimo Massa

INSEAD - Finance

David Schumacher

McGill University

Yan Wang

McMaster University

Date Written: November 12, 2020


We highlight an important but overlooked characteristic of financial fragility: “fragile” stocks are more liquid because they are sensitive to non-fundamental liquidity shocks. This makes them less sensitive to corporate actions with price impact and therefore affects firms’ incentives to engage in those actions. We show that fragile firms have lower share repurchases but invest more, the effects stronger for financially constrained firms. We establish causality by relying on exogenous changes in fragility induced by mergers of asset managers with portfolio overlap in the stocks. Our results suggest that financial fragility has direct but unexpected real implications for corporate actions.

Keywords: Financial Fragility, Liquidity, Share Repurchases, Corporate Investment.

JEL Classification: G11, G12, G14, G15, G23.

Suggested Citation

Massa, Massimo and Schumacher, David and Wang, Yan, The Bright Side of Financial Fragility (November 12, 2020). Available at SSRN: or

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
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+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

David Schumacher (Contact Author)

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
5143984778 (Phone)


Yan Wang

McMaster University ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4

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