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Stock liquidity and investment efficiency: Evidence from the split-share structure reform in China

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  • Cheung, William Ming Yan
  • Im, Hyun Joong
  • Selvam, Srinivasan

Abstract

Using China’s split-share structure reform, we examined the effect of stock liquidity on investment efficiency. We found that enhanced stock liquidity results in more efficient investments and the effect is much more pronounced for under-investing firms than for over-investing firms. Additionally, we found that an increase in institutional ownership and price efficiency generated by a change in stock liquidity is positively associated with a reduction in under-investment. Thus, these findings suggest that under-investing firms with liquid stocks have more informed investors and face greater pressure to select an optimal investment level in the post-reform period.

Suggested Citation

  • Cheung, William Ming Yan & Im, Hyun Joong & Selvam, Srinivasan, 2023. "Stock liquidity and investment efficiency: Evidence from the split-share structure reform in China," Emerging Markets Review, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:ememar:v:56:y:2023:i:c:s1566014123000511
    DOI: 10.1016/j.ememar.2023.101046
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    More about this item

    Keywords

    Stock liquidity; Investment efficiency; Institutional ownership; Information efficiency; Corporate governance;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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