Stock Liquidity and Firm Value: Evidence from a Policy Experiment in India

The Indian securities market regulator intervened in June 2010 with a regulatory amendment in the listing requirement that mandated all the listed firms other than PSUs (government‐owned companies) to have a minimum public shareholding of 25%. The affected firms were given a 3‐year window to comply...

Full description

Saved in:
Bibliographic Details
Published in:International review of finance 2020-03, Vol.20 (1), p.215-224
Main Authors: Jawed, Mohammad Shameem, Kotha, Kiran Kumar
Format: Article
Language:English
Subjects:
Liquidity
Regulation
Securities markets
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:The Indian securities market regulator intervened in June 2010 with a regulatory amendment in the listing requirement that mandated all the listed firms other than PSUs (government‐owned companies) to have a minimum public shareholding of 25%. The affected firms were given a 3‐year window to comply with the regulation. This study examines the impact of the new regulation on the affected firms’ value. We explore the relationship between improvement in firms’ value and stock liquidity. This regulatory intervention offers a natural experiment to examine direct causality between stock liquidity and firms’ value. The findings of the empirical analysis confirm the existence of a direct causal relationship between stock liquidity and firm value, stemming from an improved operating performance.
ISSN:1369-412X
1468-2443
DOI:10.1111/irfi.12200