Stock liquidity and investment efficiency: Evidence from the split-share structure reform in China

William Ming Yan Cheung; Hyun Joong Im; Srinivasan Selvam

doi:10.1016/j.ememar.2023.101046

Stock liquidity and investment efficiency: Evidence from the split-share structure reform in China

William Ming Yan Cheung
, Hyun Joong Im
, Srinivasan Selvam

School of Business Administration

Research output: Contribution to journal › Article › peer-review

10 Scopus citations

Abstract

Using China's split-share structure reform, we examined the effect of stock liquidity on investment efficiency. We found that enhanced stock liquidity results in more efficient investments and the effect is much more pronounced for under-investing firms than for over-investing firms. Additionally, we found that an increase in institutional ownership and price efficiency generated by a change in stock liquidity is positively associated with a reduction in under-investment. Thus, these findings suggest that under-investing firms with liquid stocks have more informed investors and face greater pressure to select an optimal investment level in the post-reform period.

Original language	English
Article number	101046
Journal	Emerging Markets Review
Volume	56
DOIs	https://doi.org/10.1016/j.ememar.2023.101046
State	Published - Sep 2023

Keywords

Corporate governance
Information efficiency
Institutional ownership
Investment efficiency
Stock liquidity

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10.1016/j.ememar.2023.101046

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title = "Stock liquidity and investment efficiency: Evidence from the split-share structure reform in China",

abstract = "Using China's split-share structure reform, we examined the effect of stock liquidity on investment efficiency. We found that enhanced stock liquidity results in more efficient investments and the effect is much more pronounced for under-investing firms than for over-investing firms. Additionally, we found that an increase in institutional ownership and price efficiency generated by a change in stock liquidity is positively associated with a reduction in under-investment. Thus, these findings suggest that under-investing firms with liquid stocks have more informed investors and face greater pressure to select an optimal investment level in the post-reform period.",

keywords = "Corporate governance, Information efficiency, Institutional ownership, Investment efficiency, Stock liquidity",

author = "Cheung, \{William Ming Yan\} and Im, \{Hyun Joong\} and Srinivasan Selvam",

note = "Publisher Copyright: {\textcopyright} 2023 Elsevier B.V.",

year = "2023",

month = sep,

doi = "10.1016/j.ememar.2023.101046",

language = "English",

volume = "56",

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T1 - Stock liquidity and investment efficiency

T2 - Evidence from the split-share structure reform in China

AU - Cheung, William Ming Yan

AU - Im, Hyun Joong

AU - Selvam, Srinivasan

PY - 2023/9

Y1 - 2023/9

N2 - Using China's split-share structure reform, we examined the effect of stock liquidity on investment efficiency. We found that enhanced stock liquidity results in more efficient investments and the effect is much more pronounced for under-investing firms than for over-investing firms. Additionally, we found that an increase in institutional ownership and price efficiency generated by a change in stock liquidity is positively associated with a reduction in under-investment. Thus, these findings suggest that under-investing firms with liquid stocks have more informed investors and face greater pressure to select an optimal investment level in the post-reform period.

AB - Using China's split-share structure reform, we examined the effect of stock liquidity on investment efficiency. We found that enhanced stock liquidity results in more efficient investments and the effect is much more pronounced for under-investing firms than for over-investing firms. Additionally, we found that an increase in institutional ownership and price efficiency generated by a change in stock liquidity is positively associated with a reduction in under-investment. Thus, these findings suggest that under-investing firms with liquid stocks have more informed investors and face greater pressure to select an optimal investment level in the post-reform period.

KW - Corporate governance

KW - Information efficiency

KW - Institutional ownership

KW - Investment efficiency

KW - Stock liquidity

UR - https://www.scopus.com/pages/publications/85164499387

U2 - 10.1016/j.ememar.2023.101046

DO - 10.1016/j.ememar.2023.101046

M3 - Article

AN - SCOPUS:85164499387

SN - 1566-0141

VL - 56

JO - Emerging Markets Review

JF - Emerging Markets Review

M1 - 101046

ER -

Stock liquidity and investment efficiency: Evidence from the split-share structure reform in China

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Keywords

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