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Stock liquidity and firm value: nonlinearity, corporate political connections and investor heterogeneity

This study re-examines whether the previous consensus of a positive linear relationship between liquidity and firm value prevails in the emerging stock market of Malaysia. Using data for all non-financial firms traded on Bursa Malaysia over the sample period of 2000-2015, the results from the baseli...

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Main Authors: Chia, Ee Yee, Lim, Kian Ping, Goh, Kim Leng
Format: Conference or Workshop Item
Language:English
Published: 2018
Subjects:
HB Economic Theory
Online Access:http://eprints.um.edu.my/20354/1/Lim%20Kian%20Ping%20-%20Conference%20paper.pdf
http://eprints.um.edu.my/20354/
http://www.mfa.com.my/conference/
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spelling my.um.eprints.203542019-02-28T08:34:14Z http://eprints.um.edu.my/20354/ Stock liquidity and firm value: nonlinearity, corporate political connections and investor heterogeneity Chia, Ee Yee Lim, Kian Ping Goh, Kim Leng HB Economic Theory This study re-examines whether the previous consensus of a positive linear relationship between liquidity and firm value prevails in the emerging stock market of Malaysia. Using data for all non-financial firms traded on Bursa Malaysia over the sample period of 2000-2015, the results from the baseline quadratic model suggest stocks must be traded at a higher level of liquidity before reaping the benefit of larger firm value. Our key finding of a nonlinear relationship remains robust to alternative liquidity measures and estimators, as well as passing a series of endogeneity checks. Using an ideal candidate of lot size reduction for Malaysian stocks in May 2003 as exogenous liquidity shock, we establish the causal effect from liquidity to firm value. Further interaction analyses uncover three important moderating variables in the liquidity-firm value relationship, in which the value impact demands a more liquid market for firms with political connections, higher foreign nominee ownership and higher foreign institutional ownership. These new findings provide indirect evidence of the mechanisms linking liquidity to firm value, which we hypothesize operate through the channels of cost of capital, stock price informativeness and corporate governance. 2018 Conference or Workshop Item PeerReviewed text en http://eprints.um.edu.my/20354/1/Lim%20Kian%20Ping%20-%20Conference%20paper.pdf Chia, Ee Yee and Lim, Kian Ping and Goh, Kim Leng (2018) Stock liquidity and firm value: nonlinearity, corporate political connections and investor heterogeneity. In: 20th Malaysian Finance Association Conference (MFAC 2018), 1-2 August 2018, Adya Hotel, Langkawi, Kedah, Malaysia. http://www.mfa.com.my/conference/
institution Universiti Malaya
building UM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Malaya
content_source UM Research Repository
url_provider http://eprints.um.edu.my/
language English
topic HB Economic Theory
spellingShingle HB Economic Theory
Chia, Ee Yee
Lim, Kian Ping
Goh, Kim Leng
Stock liquidity and firm value: nonlinearity, corporate political connections and investor heterogeneity
description This study re-examines whether the previous consensus of a positive linear relationship between liquidity and firm value prevails in the emerging stock market of Malaysia. Using data for all non-financial firms traded on Bursa Malaysia over the sample period of 2000-2015, the results from the baseline quadratic model suggest stocks must be traded at a higher level of liquidity before reaping the benefit of larger firm value. Our key finding of a nonlinear relationship remains robust to alternative liquidity measures and estimators, as well as passing a series of endogeneity checks. Using an ideal candidate of lot size reduction for Malaysian stocks in May 2003 as exogenous liquidity shock, we establish the causal effect from liquidity to firm value. Further interaction analyses uncover three important moderating variables in the liquidity-firm value relationship, in which the value impact demands a more liquid market for firms with political connections, higher foreign nominee ownership and higher foreign institutional ownership. These new findings provide indirect evidence of the mechanisms linking liquidity to firm value, which we hypothesize operate through the channels of cost of capital, stock price informativeness and corporate governance.
format Conference or Workshop Item
author Chia, Ee Yee
Lim, Kian Ping
Goh, Kim Leng
author_facet Chia, Ee Yee
Lim, Kian Ping
Goh, Kim Leng
author_sort Chia, Ee Yee
title Stock liquidity and firm value: nonlinearity, corporate political connections and investor heterogeneity
title_short Stock liquidity and firm value: nonlinearity, corporate political connections and investor heterogeneity
title_full Stock liquidity and firm value: nonlinearity, corporate political connections and investor heterogeneity
title_fullStr Stock liquidity and firm value: nonlinearity, corporate political connections and investor heterogeneity
title_full_unstemmed Stock liquidity and firm value: nonlinearity, corporate political connections and investor heterogeneity
title_sort stock liquidity and firm value: nonlinearity, corporate political connections and investor heterogeneity
publishDate 2018
url http://eprints.um.edu.my/20354/1/Lim%20Kian%20Ping%20-%20Conference%20paper.pdf
http://eprints.um.edu.my/20354/
http://www.mfa.com.my/conference/
_version_ 1643691253880061952
score 13.211869

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