The impact of internationalisation on stock liquidity and volatility: Evidence from the Johannesburg Stock Exchange

Abstract

Maximising firm value remains a key tenet of corporate managers. Firms with lower illiquidity and volatility attract lower risk premiums, and these are associated with a lower cost of capital and higher firm value. Internationalisation is one avenue purported to provide liquidity and volatility benefits – possibly lowering both liquidity and volatility risk premiums. This study investigated whether South African domiciled stocks experience a surge in liquidity and/or decline in volatility subsequent to internationalisation. The findings show that internationalisation resulted in a surge in liquidity, and this increase was persistent as suggested by the trading volume and Amihud illiquidity measures of stock liquidity; however, the turnover measure indicated that such liquidity gains were temporary. Similarly, volatility declines after internationalisation were temporary. There was inconclusive evidence to show that internationalised stocks had higher liquidity relative to purely domestic shares, and no statistically significant difference between the volatility of internationalised and purely domestic shareholders’ equity was noted. There is only weak evidence to support internationalisation as a route for lowering cost of capital via a reduction in the liquidity risk premium.

Analysis of Transaction Volume and Stock Return on the Indonesia Stock Exchange

“…The same thing also happened to the Debt to Equity Ratio (DER) to Stock Liquidity by research by Khediri (2011), , Zakiyah (2018).Research on the Dividend Payout Ratio (DPR) variable on Stock Liquidity also has many contradictory results by research by Michaely & Qian (2017), Griffin (2010), Stereńczak (2016). The use of the next variable in the first research model is the Foreign Value variable by the research of Chipunza & McCullough (2018), Rehman, et al (2016), Ng et al (2015). The second research model also contains the results of a literature review with results that are not much different from the first research model, there are contradictory research results.…”

Liquidity and Volatility of Stocks Moved from the Main Market to the Alternative Investment Market (AIM)

“…Other studies show that there is no relationship between moving to another market with a different information level and trading expenditures (Noronha et al, 1996;Silva & Chávez, 2008) or amount of trading volume (Berkman & Nguyen, 2010;Domowitz et al, 1998). The literature relating to the volatility change between markets with different disclosure levels shows no significant change in volatility between the two types of market (Ang et al, 2013;Chipunza, & McCullough, 2018;Howe & Madura, 1990;Howe et al, 1993) or maximization in volatility in the higher-tier market because of the increase in trading activity (Bartram et al, 2012;Menkveld, 2008). Overall, the existing evidence regarding liquidity and volatility changes when firms move to another market with a different disclosure level is not conclusive.…”