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Does Stock Liquidity Enhance or Impede Firm Innovation?

Listed author(s):
  • VIVIAN W. FANG
  • XUAN TIAN
  • SHERI TICE
Registered author(s):

    type="main"> We aim to tackle the longstanding debate on whether stock liquidity enhances or impedes firm innovation. This topic is of interest because innovation is crucial for firm- and national-level competitiveness and stock liquidity can be altered by financial market regulations. Using a difference-in-differences approach that relies on the exogenous variation in liquidity generated by regulatory changes, we find that an increase in liquidity causes a reduction in future innovation. We identify two possible mechanisms through which liquidity impedes innovation: increased exposure to hostile takeovers and higher presence of institutional investors who do not actively gather information or monitor.

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    File URL: http://hdl.handle.net/10.1111/jofi.12187
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    Article provided by American Finance Association in its journal Journal of Finance.

    Volume (Year): 69 (2014)
    Issue (Month): 5 (October)
    Pages: 2085-2125

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    Handle: RePEc:bla:jfinan:v:69:y:2014:i:5:p:2085-2125
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