The effect of stock liquidity on investment efficiency under financing constraints and asymmetric information: Evidence from the United States | Zendy

Quah Heidi | Zendy; Haman Janto | Zendy; Naidu Dharmendra | Zendy

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The effect of stock liquidity on investment efficiency under financing constraints and asymmetric information: Evidence from the United States

Author(s) -

Quah Heidi,

Haman Janto,

Naidu Dharmendra

Publication year - 2021

Publication title -

accounting and finance

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.645

H-Index - 49

eISSN - 1467-629X

pISSN - 0810-5391

DOI - 10.1111/acfi.12656

Subject(s) - information asymmetry , market liquidity , stock (firearms) , business , investment (military) , monetary economics , asymmetry , liquidity crisis , finance , economics , mechanical engineering , physics , quantum mechanics , politics , political science , law , engineering

We examine whether the association between stock liquidity and investment efficiency is more pronounced for firms with more financial constraints and information asymmetry problems. The results show that the effect of higher stock liquidity on lowering under (over)‐investment is more pronounced for firms with more financial constraints and information asymmetry problems as proxied by younger and higher business risk firms, respectively. We also find similar results for firms with lower institutional ownership, more external financing dependence and higher idiosyncratic risks. The findings collectively suggest that the effect of stock liquidity in our setting is more pervasive for firms with more financial constraints and information asymmetry problems.

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