IDEAS home Printed from https://ideas.repec.org/a/eee/joecas/v32y2025ics1703494925000295.html

Product market power, informational asymmetries and stock liquidity: Evidence from Indian firms

Author

Listed:
  • Jacob, Tinu Iype
  • Paul, Sunil

Abstract

This study investigates the impact of product market power on stock liquidity against the backdrop of rising market power and global financial market integration. It also explores the nonlinearities associated with this relationship. In addition, we examine the interaction of firm size and leverage with market power and how it shapes the market power–stock liquidity relationship. The study uses a firm-year panel of 865 NSE-listed firms from India over the period 2011–2021, and employs panel regression techniques to analyze these. Product market power is measured using price-cost markups, and stock liquidity is captured using the inverse of the illiquidity ratio and share turnover. The analysis indicates an inverted U-shaped relationship between product market power and stock liquidity. Results also highlight the role of informational asymmetries and strategic opacity in this relationship. Further, the asymmetric role of leverage and firm size in the influence of product market power on stock liquidity is confirmed. The impact of product market power on stock liquidity and the moderating/mediating influence of informational asymmetries and leverage can have significant implications for the design of policies by the firms and authorities that monitor the competitiveness of markets.

Suggested Citation

  • Jacob, Tinu Iype & Paul, Sunil, 2025. "Product market power, informational asymmetries and stock liquidity: Evidence from Indian firms," The Journal of Economic Asymmetries, Elsevier, vol. 32(C).
    • Handle: RePEc:eee:joecas:v:32:y:2025:i:c:s1703494925000295
    DOI: 10.1016/j.jeca.2025.e00429
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1703494925000295
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jeca.2025.e00429?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Atiase, Rk, 1985. "Predisclosure Information, Firm Capitalization, And Security Price Behavior Around Earnings Announcements," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 23(1), pages 21-36.
    2. Chang, Chun & Yu, Xiaoyun, 2010. "Informational Efficiency and Liquidity Premium as the Determinants of Capital Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(2), pages 401-440, April.
    3. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2007. "Liquidity and Expected Returns: Lessons from Emerging Markets," The Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 1783-1831, November.
    4. Jiang, Christine X. & Kim, Jang-Chul & Zhou, Dan, 2011. "Liquidity, analysts, and institutional ownership," International Review of Financial Analysis, Elsevier, vol. 20(5), pages 335-344.
    5. Rubin, Amir, 2007. "Ownership level, ownership concentration and liquidity," Journal of Financial Markets, Elsevier, vol. 10(3), pages 219-248, August.
    6. Gal-Or, Esther, 1985. "Information Sharing in Oligopoly," Econometrica, Econometric Society, vol. 53(2), pages 329-343, March.
    7. Aymen Ajina & Faten Lakhal & Danielle Sougné, 2015. "Institutional investors, information asymmetry and stock market liquidity in France," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 11(1), pages 44-59, February.
    8. Pastor, Lubos & Stambaugh, Robert F., 2003. "Liquidity Risk and Expected Stock Returns," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 642-685, June.
    9. Tian Zhao, 2012. "Firm size, information acquisition and price efficiency," Quantitative Finance, Taylor & Francis Journals, vol. 12(10), pages 1599-1614, October.
    10. Sreedhar T. Bharath & Paolo Pasquariello & Guojun Wu, 2009. "Does Asymmetric Information Drive Capital Structure Decisions?," The Review of Financial Studies, Society for Financial Studies, vol. 22(8), pages 3211-3243, August.
    11. Sony, Bipin & Bhaduri, Saumitra, 2021. "Information asymmetry and financing choice between debt, equity and dual issues by Indian firms," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 90-101.
    12. Kale, Jayant R. & Loon, Yee Cheng, 2011. "Product market power and stock market liquidity," Journal of Financial Markets, Elsevier, vol. 14(2), pages 376-410, May.
    13. Jan De Loecker & Frederic Warzynski, 2012. "Markups and Firm-Level Export Status," American Economic Review, American Economic Association, vol. 102(6), pages 2437-2471, October.
    14. Abdoh, Hussein & Varela, Oscar, 2017. "Product market competition, idiosyncratic and systematic volatility," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 500-513.
    15. Hayes, RM & Lundholm, R, 1996. "Segment reporting to the capital market in the presence of a competitor," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 34(2), pages 261-279.
    16. Jacob, Tinu Iype & Paul, Sunil, 2024. "Labour income share, market power and automation: Evidence from an emerging economy," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 37-45.
    17. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
    18. Sulaiman Mouselli & Aziz Jaafar, 2019. "Industry concentration, stock returns and asset pricing: The UK evidence," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1576350-157, January.
    19. Diamond, Douglas W & Verrecchia, Robert E, 1991. "Disclosure, Liquidity, and the Cost of Capital," Journal of Finance, American Finance Association, vol. 46(4), pages 1325-1359, September.
    20. Jan De Loecker & Jan Eeckhout & Gabriel Unger, 2020. "The Rise of Market Power and the Macroeconomic Implications [“Econometric Tools for Analyzing Market Outcomes”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 561-644.
    21. Aymen Ajina & Faten Lakhal & Danielle Sougné, 2015. "Institutional investors, information asymmetry and stock market liquidity in France," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 11(1), pages 44-59, February.
    22. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    23. Paul J. Irvine & Jeffrey Pontiff, 2009. "Idiosyncratic Return Volatility, Cash Flows, and Product Market Competition," The Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1149-1177.
    24. Mary E. Barth & Ron Kasznik & Maureen F. McNichols, 2001. "Analyst Coverage and Intangible Assets," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 39(1), pages 1-34, June.
    25. Stivers Andrew E, 2004. "Unraveling of Information: Competition and Uncertainty," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-18, December.
    26. Joel Peress, 2010. "Product Market Competition, Insider Trading, and Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 65(1), pages 1-43, February.
    27. Díez, Federico J. & Fan, Jiayue & Villegas-Sánchez, Carolina, 2021. "Global declining competition?," Journal of International Economics, Elsevier, vol. 132(C).
    28. Im, Hyun Joong & Selvam, Srinivasan & Tan, Kelvin J.K., 2024. "Effect of stock liquidity on the economic value of patents: Evidence from U.S. patent data," International Review of Financial Analysis, Elsevier, vol. 94(C).
    29. Hyun Joong Im & Barry Oliver & Heungju Park, 2022. "The effect of stock liquidity on corporate cash holdings: The real investment motive," International Review of Finance, International Review of Finance Ltd., vol. 22(3), pages 580-596, September.
    30. Chung, Kee H. & Zhang, Hao, 2014. "A simple approximation of intraday spreads using daily data," Journal of Financial Markets, Elsevier, vol. 17(C), pages 94-120.
    31. Stereńczak, Szymon & Kubiak, Jarosław, 2022. "Dividend policy and stock liquidity: Lessons from Central and Eastern Europe," Research in International Business and Finance, Elsevier, vol. 62(C).
    32. Kewei Hou & David T. Robinson, 2006. "Industry Concentration and Average Stock Returns," Journal of Finance, American Finance Association, vol. 61(4), pages 1927-1956, August.
    33. Huong Le & Andros Gregoriou, 2020. "How Do You Capture Liquidity? A Review Of The Literature On Low‐Frequency Stock Liquidity," Journal of Economic Surveys, Wiley Blackwell, vol. 34(5), pages 1170-1186, December.
    34. Paul J. Irvine & Jeffrey Pontiff, 2009. "Idiosyncratic Return Volatility, Cash Flows, and Product Market Competition," The Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1149-1177, March.
    35. Foster, F Douglas & Viswanathan, S, 1993. "The Effect of Public Information and Competition on Trading Volume and Price Volatility," The Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 23-56.
    36. Tran, Ly Thi Hai & Hoang, Thao Thi Phuong & Tran, Hoa Xuan, 2018. "Stock liquidity and ownership structure during and after the 2008 Global Financial Crisis: Empirical evidence from an emerging market," Emerging Markets Review, Elsevier, vol. 37(C), pages 114-133.
    37. Heather E. Tookes, 2008. "Information, Trading, and Product Market Interactions: Cross‐sectional Implications of Informed Trading," Journal of Finance, American Finance Association, vol. 63(1), pages 379-413, February.
    38. Amihud, Yakov & Mendelson, Haim & Pedersen, Lasse Heje, 2006. "Liquidity and Asset Prices," Foundations and Trends(R) in Finance, now publishers, vol. 1(4), pages 269-364, February.
    39. Wang, Xiaoqiong & Wei, Siqi, 2021. "Does the investment horizon of institutional investors matter for stock liquidity?," International Review of Financial Analysis, Elsevier, vol. 74(C).
    40. 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).
    41. Harris, MS, 1998. "The association between competition and managers' business segment reporting decisions," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 36(1), pages 111-128.
    42. Florackis, Chris & Gregoriou, Andros & Kostakis, Alexandros, 2011. "Trading frequency and asset pricing on the London Stock Exchange: Evidence from a new price impact ratio," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3335-3350.
    43. Xiaoxia Lou & Tao Shu, 2017. "Price Impact or Trading Volume: Why Is the Amihud (2002) Measure Priced?," The Review of Financial Studies, Society for Financial Studies, vol. 30(12), pages 4481-4520.
    44. Aymen Ajina & Faten Lakhal & Danielle Sougné, 2015. "Institutional investors, information asymmetry and stock market liquidity in France," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 11(1), pages 44-59, February.
    45. Ngoc Bao Dinh & Van Nguyen Hong Tran, 2024. "Institutional Ownership and Stock Liquidity: Evidence From an Emerging Market," SAGE Open, , vol. 14(1), pages 21582440241, March.
    46. Díaz, Antonio & Escribano, Ana, 2020. "Measuring the multi-faceted dimension of liquidity in financial markets: A literature review," Research in International Business and Finance, Elsevier, vol. 51(C).
    47. Liu, Weimin, 2006. "A liquidity-augmented capital asset pricing model," Journal of Financial Economics, Elsevier, vol. 82(3), pages 631-671, December.
    48. Roll, Richard, 1984. "A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market," Journal of Finance, American Finance Association, vol. 39(4), pages 1127-1139, September.
    49. Nadarajah, Sivathaasan & Duong, Huu Nhan & Ali, Searat & Liu, Benjamin & Huang, Allen, 2021. "Stock liquidity and default risk around the world," Journal of Financial Markets, Elsevier, vol. 55(C).
    50. Acharya, Viral V. & Pedersen, Lasse Heje, 2005. "Asset pricing with liquidity risk," Journal of Financial Economics, Elsevier, vol. 77(2), pages 375-410, August.
    51. Vuong, Thi Huong Giang & Nguyen, Van Phuc & Nguyen, Huu Manh, 2025. "Does stock liquidity matter for corporate cash holdings? Insights from a transition economy," Global Finance Journal, Elsevier, vol. 65(C).
    52. Drago Bergholt & Francesco Furlanetto & Nicolò Maffei-Faccioli, 2022. "The Decline of the Labor Share: New Empirical Evidence," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(3), pages 163-198, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kale, Jayant R. & Loon, Yee Cheng, 2011. "Product market power and stock market liquidity," Journal of Financial Markets, Elsevier, vol. 14(2), pages 376-410, May.
    2. Tran, Ly Thi Hai & Hoang, Thao Thi Phuong & Tran, Hoa Xuan, 2018. "Stock liquidity and ownership structure during and after the 2008 Global Financial Crisis: Empirical evidence from an emerging market," Emerging Markets Review, Elsevier, vol. 37(C), pages 114-133.
    3. Stereńczak, Szymon & Zaremba, Adam & Umar, Zaghum, 2020. "Is there an illiquidity premium in frontier markets?," Emerging Markets Review, Elsevier, vol. 42(C).
    4. Díaz, Antonio & Escribano, Ana, 2020. "Measuring the multi-faceted dimension of liquidity in financial markets: A literature review," Research in International Business and Finance, Elsevier, vol. 51(C).
    5. Andres, Christian & Cumming, Douglas & Karabiber, Timur & Schweizer, Denis, 2014. "Do markets anticipate capital structure decisions? — Feedback effects in equity liquidity," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 133-156.
    6. Thomas Paul & Thomas Walther & André Küster-Simic, 2022. "Empirical analysis of the illiquidity premia of German real estate securities," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(2), pages 203-260, June.
    7. Chiu, Yen-Chen, 2020. "Macroeconomic uncertainty, information competition, and liquidity," Finance Research Letters, Elsevier, vol. 34(C).
    8. Zeynep Cobandag Guloglu & Cumhur Ekinci, 2022. "Liquidity measurement: A comparative review of the literature with a focus on high frequency," Journal of Economic Surveys, Wiley Blackwell, vol. 36(1), pages 41-74, February.
    9. Kang, Wenjin & Zhang, Huiping, 2014. "Measuring liquidity in emerging markets," Pacific-Basin Finance Journal, Elsevier, vol. 27(C), pages 49-71.
    10. Craig W. Holden & Stacey Jacobsen & Avanidhar Subrahmanyam, 2014. "The Empirical Analysis of Liquidity," Foundations and Trends(R) in Finance, now publishers, vol. 8(4), pages 263-365, December.
    11. Huong Le & Andros Gregoriou, 2020. "How Do You Capture Liquidity? A Review Of The Literature On Low‐Frequency Stock Liquidity," Journal of Economic Surveys, Wiley Blackwell, vol. 34(5), pages 1170-1186, December.
    12. Rahman, Dewan & Kabir, Muhammad & Oliver, Barry, 2021. "Does exposure to product market competition influence insider trading profitability?," Journal of Corporate Finance, Elsevier, vol. 66(C).
    13. Xia, Dehua, 2026. "Green governance: The entry of green investors and stock liquidity," Finance Research Letters, Elsevier, vol. 89(C).
    14. Belkhir, Mohamed & Saad, Mohsen & Samet, Anis, 2020. "Stock extreme illiquidity and the cost of capital," Journal of Banking & Finance, Elsevier, vol. 112(C).
    15. Dong, Liang & Yu, Bo & Qin, Zhenjiang & Lam, Keith S.K., 2024. "Liquidity risk and expected returns in China’s stock market: A multidimensional liquidity approach," Research in International Business and Finance, Elsevier, vol. 69(C).
    16. Hoang Vu, Ngan & Dang, Ha V. & Nguyen, Hung T. & Pham, Mia Hang, 2025. "Upholding integrity: The influence of executives’ backgrounds on corporate information environment," Journal of Behavioral and Experimental Finance, Elsevier, vol. 46(C).
    17. Mousumi Bhattacharya & Sharad Nath Bhattacharya & Sumit Kumar Jha, 2022. "Does time-varying illiquidity matter for the Indian stock market? Evidence from high-frequency data," Australian Journal of Management, Australian School of Business, vol. 47(2), pages 251-272, May.
    18. Donadelli, Michael & Prosperi, Lorenzo, 2012. "On the role of liquidity in emerging markets stock prices," Research in Economics, Elsevier, vol. 66(4), pages 320-348.
    19. Haw, In-Mu & Hu, Bingbing & Lee, Jay Junghun, 2015. "Product market competition and analyst forecasting activity: International evidence," Journal of Banking & Finance, Elsevier, vol. 56(C), pages 48-60.
    20. Hee-Joon Ahn & Jun Cai & Cheol-Won Yang, 2018. "Which Liquidity Proxy Measures Liquidity Best in Emerging Markets?," Economies, MDPI, vol. 6(4), pages 1-29, December.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G1 - Financial Economics - - General Financial Markets
    • D2 - Microeconomics - - Production and Organizations
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:joecas:v:32:y:2025:i:c:s1703494925000295. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/the-journal-of-economic-asymmetries/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.