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- Publisher Website: 10.1016/j.jempfin.2018.09.002
- Scopus: eid_2-s2.0-85054236845
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Article: Stock Liquidity and Corporate Diversification: Evidence from China's Split Share Structure Reform
Title | Stock Liquidity and Corporate Diversification: Evidence from China's Split Share Structure Reform |
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Authors | |
Keywords | Agency problem China Corporate diversification Corporate governance Financial constraint |
Issue Date | 2018 |
Publisher | Elsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/jempfin |
Citation | Journal of Empirical Finance, 2018, v. 49, p. 57-80 How to Cite? |
Abstract | We establish that stock liquidity is conducive to less corporate diversification. Two potential channels are identified: the financial constraint channel and the corporate governance channel. Specifically, the negative effect of liquidity on diversification is stronger among financially-constrained firms, since higher liquidity helps firms improve external capital markets and thus reduces the need to broaden the internal capital markets through diversification. Moreover, the effect of liquidity on diversification is strengthened among firms with severe information asymmetry, since enhanced price informativeness caused by increased liquidity promotes market monitoring and deters managers’ opportunistic diversification decisions. Meanwhile, we rule out the alternative explanation that liquidity discourages diversification by facilitating blockholders’ monitoring on managers’ decisions. Our results suggest that stock liquidity plays a positive role in corporate decision making. |
Persistent Identifier | http://hdl.handle.net/10722/272776 |
ISSN | 2023 Impact Factor: 2.1 2023 SCImago Journal Rankings: 0.927 |
SSRN | |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Gu, L | - |
dc.contributor.author | Yao, W | - |
dc.contributor.author | Zhang, Y | - |
dc.contributor.author | Wang, Y | - |
dc.date.accessioned | 2019-08-06T09:16:21Z | - |
dc.date.available | 2019-08-06T09:16:21Z | - |
dc.date.issued | 2018 | - |
dc.identifier.citation | Journal of Empirical Finance, 2018, v. 49, p. 57-80 | - |
dc.identifier.issn | 0927-5398 | - |
dc.identifier.uri | http://hdl.handle.net/10722/272776 | - |
dc.description.abstract | We establish that stock liquidity is conducive to less corporate diversification. Two potential channels are identified: the financial constraint channel and the corporate governance channel. Specifically, the negative effect of liquidity on diversification is stronger among financially-constrained firms, since higher liquidity helps firms improve external capital markets and thus reduces the need to broaden the internal capital markets through diversification. Moreover, the effect of liquidity on diversification is strengthened among firms with severe information asymmetry, since enhanced price informativeness caused by increased liquidity promotes market monitoring and deters managers’ opportunistic diversification decisions. Meanwhile, we rule out the alternative explanation that liquidity discourages diversification by facilitating blockholders’ monitoring on managers’ decisions. Our results suggest that stock liquidity plays a positive role in corporate decision making. | - |
dc.language | eng | - |
dc.publisher | Elsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/jempfin | - |
dc.relation.ispartof | Journal of Empirical Finance | - |
dc.subject | Agency problem | - |
dc.subject | China | - |
dc.subject | Corporate diversification | - |
dc.subject | Corporate governance | - |
dc.subject | Financial constraint | - |
dc.title | Stock Liquidity and Corporate Diversification: Evidence from China's Split Share Structure Reform | - |
dc.type | Article | - |
dc.identifier.email | Gu, L: oliviagu@hku.hk | - |
dc.identifier.authority | Gu, L=rp01802 | - |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1016/j.jempfin.2018.09.002 | - |
dc.identifier.scopus | eid_2-s2.0-85054236845 | - |
dc.identifier.hkuros | 299774 | - |
dc.identifier.volume | 49 | - |
dc.identifier.spage | 57 | - |
dc.identifier.epage | 80 | - |
dc.identifier.isi | WOS:000454461900004 | - |
dc.publisher.place | Netherlands | - |
dc.identifier.ssrn | 3197512 | - |
dc.identifier.issnl | 0927-5398 | - |