Stock Liquidity and Investment Efficiency: Evidence from the Split-Share Structure Reform in China

53 Pages Posted: 18 Nov 2021 Last revised: 21 Aug 2023

See all articles by William M. Cheung

William M. Cheung

Waseda University

Hyun Joong Im

The University of Seoul

Srinivasan Selvam

EDHEC Business School - EDHEC Infrastructure Institute

Date Written: June 5, 2023

Abstract

Using the split-share structure reform in China, we examine the effect of stock liquidity on investment efficiency. We find that enhanced stock liquidity leads to more efficient investment and the effect is much more pronounced for under-investing firms compared to over-investing firms. We also find that the increase in institutional ownership and price efficiency generated by the change in stock liquidity is positively associated with the reduction in under-investment. Taken together, these findings suggest that under-investing firms with liquid stocks have more informed investors and face higher pressure to select an optimal level of investment in the post-reform period.

Keywords: Stock liquidity, Investment efficiency, Institutional ownership, Information efficiency, Corporate governance

JEL Classification: G14, G15, G31, G34, D83

Suggested Citation

Cheung, William Ming Yan and Im, Hyun Joong and Selvam, Srinivasan, Stock Liquidity and Investment Efficiency: Evidence from the Split-Share Structure Reform in China (June 5, 2023). Emerging Markets Review, Vol. 56, 101046, 2023, Available at SSRN: https://ssrn.com/abstract=3966116 or http://dx.doi.org/10.2139/ssrn.3966116

William Ming Yan Cheung

Waseda University ( email )

1-6-1 Nishi-Waseda, Shinjuku-ku
1-6-1 Nishi-Waseda, Shinjuku-ku
Tokyo, Tokyo 169-8050
Japan

HOME PAGE: http://https://www.waseda.jp/fcom/wbs/other-en/5049

Hyun Joong Im (Contact Author)

The University of Seoul ( email )

163 Seoulsiripdae-ro
Dongdaemun-gu
Seoul, 02504
Korea, Republic of (South Korea)
+82-2-6490-2268 (Phone)
+82-2-6490-2219 (Fax)

Srinivasan Selvam

EDHEC Business School - EDHEC Infrastructure Institute ( email )

One George Street
07-02
Singapore
Singapore

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
167
Abstract Views
807
Rank
303,114
PlumX Metrics