Institutional Ownership and Stock Liquidity: International Evidence

Abstract

This paper investigates the relation between institutional ownership and stock liquidity, and explores whether this relation differs across institutional settings. Using a comprehensive data set across 41 countries from 2000 to 2010, we find that institutional ownership is positively correlated with stock liquidity. Importantly, the positive association between institutional ownership and stock liquidity is stronger (weaker) for firms in countries with opaque (transparent) information environments or poor (good) institutional characteristics. Our additional analysis reveals that the positive association between institutional ownership and liquidity is attributable to non-block institutional investors. 3 See Edmans (2014) for a comprehensive survey of the literature on blockholders. 4 Two studies in markets other than the US are Syamala et al. (2014) in India and Rhee and Wang (2009) in Indonesia. T. L. Dang et al. 5 See Ferreira and Matos (2008) for a detailed discussion on the FactSet/LionShares database. 6 As a robustness check, we repeat the empirical analysis using only firms with non-missing observations of institutional ownership. Our main results remain qualitatively unaffected. Institutional Ownership and Liquidity

The Role of Ownership Structure and Board Characteristics in Stock Market Liquidity

“…Ajina et al (2015) find that institutional investors improve the liquidity of stock markets. According to Dang et al (2018), institutional investors positively affect stock market liquidity. Ali and Hashmi (2018) explain that due to having more inside information and more trading volume, institutional investors drive stock market liquidity.…”

Stock liquidity and stock return: an asymmetric impact of institutional ownership approach

“…Active management of the company, according to transaction cost theory, leads to a reduction in transaction costs and thus reduces the gap between the purchase and sale price of shares and, consequently, increases the liquidity of the company's shares. As a result of this argument, a positive relationship can be predicted between the level of institutional ownership and the liquidity of the company's shares (Leuza et al, 2003;Sias et al, 2006;Yaghoobnezhad et al, 2011;Cao and Petrasek, 2014;Dang et al, 2018;Ali and Hashemi, 2018;Hunjra et al, 2020;Dyakov and Wipplinger, 2020). These studies argue that institutional ownership reduces uncertainty about the real price of assets, lowers transaction losses, enhances investor interest, and consequently boosts market liquidity.…”

Are Non‐controlling Foreign Institutional Investors a Friend or Foe to Equity Liquidity? Evidence from China*

“…Similarly, Dang et al . (2018) note a positive association between FII ownership and liquidity among FIIs with non‐controlling ownership. Other evidence supporting the information benefits provided by FIIs includes an increase in analyst coverage, a decrease in earnings management, and greater price informativeness (Bae et al ., 2006; He et al ., 2013).…”