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Commonality In Liquidity Of Nearby Firms

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  • Chengcheng Li
  • Xiaoqiong Wang

Abstract

In this article, we examine commonality in liquidity of firms headquartered in the same states and how the local liquidity commonality is influenced by firm‐ and state‐level characteristics. We document strong liquidity comovement of nearby firms. Moreover, firms that change headquarters location experience a decrease in their liquidity commonality with firms in the old states and an increase in their liquidity commonality with firms in the new states. Our findings show that both firm‐ and state‐level characteristics determine local liquidity comovement. Local liquidity commonality is stronger for firms with smaller size and lower level of institutional ownership. Our results also suggest that state‐level volatility, state personal income, state investment income, and state turnover commonality explain the local component of liquidity commonality. We further document that the four state‐level factors perform differently during volatile market periods.

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  • Chengcheng Li & Xiaoqiong Wang, 2019. "Commonality In Liquidity Of Nearby Firms," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 42(4), pages 675-711, December.
    • Handle: RePEc:bla:jfnres:v:42:y:2019:i:4:p:675-711
    DOI: 10.1111/jfir.12193
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    Cited by:

    1. Kim, Donghyun & Li, Chengcheng & Wang, Xiaoqiong, 2023. "Liquidity Dry-ups in equity markets," International Review of Financial Analysis, Elsevier, vol. 86(C).
    2. Li, Chengcheng & Wang, Xiaoqiong, 2022. "Local peer effects of corporate social responsibility," Journal of Corporate Finance, Elsevier, vol. 73(C).

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