Foreign Institutional Ownership and Liquidity : Evidence from Thailand

This paper examines the impact of foreign institutional ownership on stock liquidity in a sample of 950 firm-year observations from 190 listed companies in the Stock Exchange of Thailand (SET) over a period 2011 to 2015. Multiple regressions are used to examine relationships between foreign institutional ownership and liquidity measures. The two-stage least squares (2SLS) are also employed to ensure that the regression results are not susceptible to endogeneity problem. After controlling for price, return volatility, and firm size, the results indicate that equity ownership by foreign institutional investors has a negative impact on stock liquidity. The results are still robust even after controlling for endogeneity. The findings of this paper suggest that foreign institutional ownership may increase the degree of information asymmetry between foreign and local investors, and that foreign institutional investors adopt buy-and-hold strategy following their high ownership in local firms. Both the higher information asymmetry and the inactive trading activity reduce liquidity