Does Stock Liquidity Enhance or Impede Firm Innovation?
type="main"> <title type="main">ABSTRACT</title> <p>We aim to tackle the longstanding debate on whether stock liquidity enhances or impedes firm innovation. This topic is of interest because innovation is crucial for firm- and national-level competitiveness and stock liquidity can be altered by financial market regulations. Using a difference-in-differences approach that relies on the exogenous variation in liquidity generated by regulatory changes, we find that an increase in liquidity causes a reduction in future innovation. We identify two possible mechanisms through which liquidity impedes innovation: increased exposure to hostile takeovers and higher presence of institutional investors who do not actively gather information or monitor.
Year of publication: |
2014
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Authors: | FANG, VIVIAN W. ; TIAN, XUAN ; TICE, SHERI |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 69.2014, 5, p. 2085-2125
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Publisher: |
American Finance Association - AFA |
Saved in:
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