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

Ming Yan William Cheung, Richard Chung, Scott Fung

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16 Citations (Scopus)


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.

Original languageEnglish
Pages (from-to)211-231
Number of pages21
JournalJournal of Corporate Finance
Publication statusPublished - 2015 Dec 1
Externally publishedYes



  • Corporate governance
  • Endogeneity
  • Institutional ownership
  • REITs
  • Stock liquidity

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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