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

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: 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