THE VALUE EFFECT OF STOCK LIQUIDITY AND THE ROLE OF COUNTRY-LEVEL INSTITUTIONAL ENVIRONMENTS

Abstract

This paper explores the relationship between the liquidity and firm value and how this relationship differs across different institutional and information environments. Using a sample of firms from 14 emerging markets for the period from 2005 to 2014, I demonstrate that the liquidity of stock is positively correlated with firm value. Besides, it shows the implication of mechanism through which the liquidity affects firm value. More than that, it documents that the positive relationship between liquidity and firm value is greater for firms in nations with strong institutional environment. The results offer more insights into the role of liquidity in emerging markets.