Asset Liquidity and Stock Liquidity : International Evidence

This study examines the relation between asset liquidity and stock liquidity across 47 countries. In support of the valuation uncertainty hypothesis, we find that firms with greater asset liquidity on average have higher stock liquidity. More importantly, our study shows that asset liquidity plays a more significant role in resolving valuation uncertainty in countries with poor information environment. For example, we find that the asset-stock liquidity relation is stronger in countries with poor accounting standards. We further find some evidence that after the adoption of IFRS, the improved accounting information environment results in a weaker asset-stock liquidity relation, but only in countries with a strong legal regime. Finally, our study shows that the positive asset-stock liquidity relation may be attributed to transparency and/or liquidity reasons