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Stock Liquidity and Firm Value: Evidence from a Policy Experiment in India
Author(s) -
Jawed Mohammad Shameem,
Kotha Kiran Kumar
Publication year - 2020
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12200
Subject(s) - market liquidity , business , monetary economics , listing (finance) , stock (firearms) , stock market , enterprise value , cross listing , empirical evidence , economic interventionism , economics , accounting , financial economics , financial system , finance , corporate governance , mechanical engineering , paleontology , horse , politics , political science , law , biology , engineering , philosophy , epistemology
The Indian securities market regulator intervened in June 2010 with a regulatory amendment in the listing requirement that mandated all the listed firms other than PSUs (government‐owned companies) to have a minimum public shareholding of 25%. The affected firms were given a 3‐year window to comply with the regulation. This study examines the impact of the new regulation on the affected firms’ value. We explore the relationship between improvement in firms’ value and stock liquidity. This regulatory intervention offers a natural experiment to examine direct causality between stock liquidity and firms’ value. The findings of the empirical analysis confirm the existence of a direct causal relationship between stock liquidity and firm value, stemming from an improved operating performance.