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Stock Market Liquidity: Financially Constrained Firms and Share Repurchase

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  • Hazel Thu-Hien Nguyen

Abstract

Stock illiquidity raises the cost of share ownership to outside investors and increases firms’ cost of capital. This study substantiates that shares of financially constrained firms are significantly more illiquid than shares of similar but financially unconstrained firms. Acting as buyers of last resort for their own shares, share repurchases by financially constrained firms enhance stock liquidity, which alleviates the cost of external financing and underinvestment. Increased stock liquidity improves information efficiency, inducing higher value-added from incremental capital investments. Further, higher stock liquidity lowers stock volatility and allows financially constrained firms to issue equity.

Suggested Citation

  • Hazel Thu-Hien Nguyen, 2017. "Stock Market Liquidity: Financially Constrained Firms and Share Repurchase," Accounting and Finance Research, Sciedu Press, vol. 6(4), pages 130-130, Novebmer.
    • Handle: RePEc:jfr:afr111:v:6:y:2017:i:4:p:130
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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