Stock market liquidity and firm value: an empirical examination of the Australian market

Trang Nguyen, Huu Nhan Duong, Harminder Singh

Research output: Contribution to journalArticleResearchpeer-review

8 Citations (Scopus)

Abstract

We document a positive relation between stock liquidity and firm value. We examine the mechanism through which stock market liquidity enhances firm value by dividing firm value, as measured by Tobin's Q, into three components, namely, operating income to price, leverage, and operating income to assets. Using the switch to broker anonymity as an exogenous shock to market liquidity, we show that the increase in liquidity around the shock leads to an increase in firm value. Our results suggest that higher firm value for more liquid stocks seems to stem from enhanced stock prices rather than from better operating performance.

Original languageEnglish
Pages (from-to)639-646
Number of pages8
JournalInternational Review of Finance
Volume16
Issue number4
DOIs
Publication statusPublished - 1 Dec 2016

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