Institutional investors, information asymmetry and stock market liquidity in France

Abstract

Purpose – The purpose of this paper is to examine the effect of institutional investors’ ownership and type on information asymmetry and stock market liquidity in France. Design/methodology/approach – The sample includes 162 French-listed firms from 2007 to 2009. The methodology relies on linear regressions using the method of ordinary least square. Before examining the interaction between liquidity and institutional investors, the authors check for the existence of the endogeneity problem by applying the Durbin-Wu-Hausman test of Davidson and MacKinnon (1993). The results of the endogeneity test show that institutional investors’ ownership and stock liquidity are endogenous. A simultaneous equation model using the double least square method is then tested to address this problem. Findings – The findings show that the proportion of institutional investors has a positive and significant effect on stock-market liquidity, which confirms the signal theory and trading hypothesis. These investors perform high trading activity which favorably affects market liquidity. The results also show that pension funds improve stock liquidity. This result suggests that pension funds manage huge assets decreasing transaction costs and improving liquidity. They display a positive signal to the market about more transparency and a low level of informational asymmetry. Practical implications – These results highlight the institutional investors’ role in defining the level of liquidity on the French market. The findings also stress the relevance of developing institutional investors’ demand for the Paris market in order to better assess firm value, protect minority ownership and improve market liquidity. Originality/value – In the French institutional setting, institutional investors act as a control device since minority shareholder interests are less protected than in Anglo-American counterparts. This result highlights the significant role of institutional investors in corporate governance structures and on financial markets. Their presence is a guarantee for minority interest protection and for more liquid stocks.

Earnings Management, Accruals and Stock Liquidity

“…Indeed, the studies of Attig et al, (2006), Brockman and Chung (2001), and Ajina et al, (2015) found that stock pricepositively correlates with liquidity.…”

Corporate Governance, Ownership Structure and Stock Market Liquidity in Saudi Arabia: A Conceptual Research Framework

“…In the same context, Ajina et al (2015) indicated that institutional share-ownership appeared to mitigate bid-ask spreads and enhance stock liquidity. Owing to the diverse portfolios of institutional investors, they trade frequently.…”

“…Meanwhile, shareholder concentration was reported to have a negative effect on liquidity of the French market by Ajina and Lakhal (2010). Evidently, the controlling shareholder (informed investor), may lessen the information volume on the market and this would lead to high adverse selection costs.…”

“…Because of the presence of two types of costs (adverse selection costs and transaction costs), the relationship between ownership structure and liquidity is quite complex in studies. This is compounded by the various types of informed investors, such as managers, majority shareholders and institutional investors (Ajina & Lakhal, 2010).…”

A Comprehensive Framework of Corporate Strategies Leveraging Open Innovation

“…In fact, an organization should inevitably meet the expectations and needs of the shareholders and stakeholders including suppliers, customers, government, communities, and creditors as well [7]. The financial corruptions and discriminative behaviors in the organizations have attracted the attention of both scholars and policymakers in recent years [8]. This leads to need for maintaining strict monitoring and control of organizations in order to protect the interests of shareholders and stakeholders [9].…”