The effects of stock liquidity on firm value and corporate governance: Endogeneity and the REIT experiment

William Mingyan Cheung, Richard Chung and Scott Fung

Journal of Corporate Finance, 2015, vol. 35, issue C, 211-231

Abstract: This study examines the effects of stock liquidity on firm value and corporate governance using the Real Estate Investment Trust (REIT) setting. The unique features of the REIT industry, including homogeneity of the investment structures, the high payout requirement, and the importance of institutional investors, highlight the positive effect of stock liquidity on firm value through corporate governance. To address the endogeneity problem, we perform a difference-in-differences test based on the propensity score matching estimator. The result shows that REIT stock liquidity has a causal and positive effect on firm value, as measured by Tobin's Q. Importantly, REIT stock liquidity is conducive to better corporate governance through the channel of institutional ownership. REIT stock liquidity leads to higher institutional ownership, particularly for institutional investor types that are active monitors and institutional investors with multi-firm ownership in their REIT portfolios.

Keywords: Stock liquidity; REITs; Corporate governance; Institutional ownership; Endogeneity (search for similar items in EconPapers)
JEL-codes: C31 G12 G23 G30 G34 G39 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:35:y:2015:i:c:p:211-231

DOI: 10.1016/j.jcorpfin.2015.09.001

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