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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
Abstract 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.