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Corporate investment and stock liquidity: Evidence on the price impact of trade

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  • Moonsoo Kang
  • Wei Wang
  • Chanyoung Eom

Abstract

We document that corporate investment contributes to stock liquidity. This study demonstrates a positive relationship between abnormal corporate investment and stock liquidity in the cross‐section. Moreover, stock liquidity improves more apparently for firms with financial constraints. Our robustness check confirms that the existing regularities cannot explain the current finding. This analysis suggests that corporate investment decreases the risk of a firm and that a change in the risk affects the behavior of a market maker, leading to an increase in stock liquidity.

Suggested Citation

  • Moonsoo Kang & Wei Wang & Chanyoung Eom, 2017. "Corporate investment and stock liquidity: Evidence on the price impact of trade," Review of Financial Economics, John Wiley & Sons, vol. 33(1), pages 1-11, April.
    • Handle: RePEc:wly:revfec:v:33:y:2017:i:1:p:1-11
    DOI: 10.1016/j.rfe.2017.02.001
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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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