Does Social Capital Enhance Stock Liquidity – Trading Environment Resilience during a Crisis of Trust?

41 Pages Posted: 6 May 2022

See all articles by Robert W. Faff

Robert W. Faff

Corvinus University Budapest; University of Queensland; Bond University

Jianning Huang

University of Manitoba - Department of Accounting and Finance

Pei Shao

Dhillon School of Business, University of Lethbridge

Yuchao Xiao

Deakin Business School, Deakin University

Fuzhao Zhou

Bowling Green State University

Date Written: August 10, 2021

Abstract

We examine whether social capital and trust provide a form of liquidity/trading resilience. Specifically, can social capital play a role in speeding the stock recovery process following activations of the market-wide circuit breaker (MWCB), which occurred at the beginning of the COVID-19 pandemic in March 2020. We find that stocks rebound more quickly after the trading halt for high-social capital firms than for other firms in terms of quality of the stock trading environment and promptness with which stock liquidity improved. This finding provides new evidence that social capital and trust can safeguard firms’ stocks against a potential liquidity drain and rapid deterioration in the stock trading environment under extreme market conditions.

Keywords: COVID-19, Social capital and trust, Corporate social responsibility, Market-wide circuit breakers, Intra-day stock market liquidity and trading environment.

JEL Classification: G01, G10, G14. M14

Suggested Citation

Faff, Robert W. and Huang, Jianning and Shao, Pei and Xiao, Yuchao and Zhou, Fuzhao, Does Social Capital Enhance Stock Liquidity – Trading Environment Resilience during a Crisis of Trust? (August 10, 2021). Available at SSRN: https://ssrn.com/abstract=4080135 or http://dx.doi.org/10.2139/ssrn.4080135

Robert W. Faff

Corvinus University Budapest ( email )

Fovam ter 8.
Budapest
Hungary

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Bond University ( email )

Gold Coast, QLD 4229
Australia

Jianning Huang

University of Manitoba - Department of Accounting and Finance

Asper School of Business
Winnipeg, MB R3T 5V4
Canada

Pei Shao (Contact Author)

Dhillon School of Business, University of Lethbridge ( email )

345 6 Ave SE
Calgary, Alberta T2G 4V1
Canada
+14033801845 (Phone)
T2G 4V1 (Fax)

Yuchao Xiao

Deakin Business School, Deakin University ( email )

75 Pigdons Road
Victoria, Victoria 3216
Australia

Fuzhao Zhou

Bowling Green State University ( email )

Allen W. and Carol M. Schmidthorst College of Busi
Bowling Green, OH 43403
United States

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