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Corporate investment and stock liquidity: Evidence on the price impact of trade
Author(s) -
Kang Moonsoo,
Wang Wei,
Eom Chanyoung
Publication year - 2017
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2017.02.001
Subject(s) - market liquidity , market maker , monetary economics , liquidity crisis , stock (firearms) , liquidity premium , economics , liquidity risk , business , financial economics , stock market , stock exchange , financial system , finance , mechanical engineering , paleontology , horse , biology , engineering
We document that corporate investment contributes to stock liquidity. This study demonstrates a positive relationship between abnormal corporate investment and stock liquidity in the cross‐section. Moreover, stock liquidity improves more apparently for firms with financial constraints. Our robustness check confirms that the existing regularities cannot explain the current finding. This analysis suggests that corporate investment decreases the risk of a firm and that a change in the risk affects the behavior of a market maker, leading to an increase in stock liquidity.