Stock Liquidity and Corporate Investment Policy after FTSE 100 Index Additions

Valentina Cioli, Tronconi Giacomo, Alessandro Giannozzi and Oliviero Roggi

International Journal of Business and Management, 2023, vol. 17, issue 10, 20

Abstract: This study falls within the literature on connections between market microstructure of firm’s securities and corporate finance. We conduct an analysis on a sample of firms added to the FTSE 100, over the time-period 2005-2017, following the evidence, widely documented in literature, that additions to major indexes are exogenous liquidity-enhancing events. We study the improvement in liquidity and expansion in capital spending, either in the univariate analysis, either in multivariate analysis. Our results confirm that changes in stock liquidity are positively associated to changes in capital expenditures, especially on a 3-years horizon. Managers should consider the benefit of greater stock liquidity in order to maximize the value of the firm.

Date: 2023
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