Foreign ownership and stock liquidity uncertainty

Yong Li, Minghui Han, Robert Faff and Hao Zhang

Journal of International Financial Markets, Institutions and Money, 2022, vol. 81, issue C

Abstract: Using manually collected data on foreign investors in China from 33 jurisdictions between 2008 and 2018, we find evidence supporting the view that foreign investors significantly reduce stock liquidity uncertainty. The results of instrumental variable regressions corroborate this causal relationship. Foreign investors introduce good governance practices and socially responsible philosophies to Chinese listed firms, reducing stock liquidity uncertainty. However, we find that a greater cultural distance between foreign investors and investee firms undermines the marginal effect of foreign ownership on reducing stock liquidity uncertainty. Furthermore, the effect of foreign investors on reducing stock liquidity uncertainty is greater for firms with poor corporate governance. Therefore, we conclude that foreign investors play a positive role in the world’s largest emerging stock market.

Keywords: Foreign ownership; Stock liquidity uncertainty; International corporate finance (search for similar items in EconPapers)
JEL-codes: G23 G32 N2 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:81:y:2022:i:c:s1042443122001457

DOI: 10.1016/j.intfin.2022.101673

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