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

William Mingyan Cheung, Richard Chung, Scott Fung

Research output: Contribution to journalArticle

21 Citations (Scopus)

Abstract

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
Volume35
DOIs
Publication statusPublished - 2015 Dec 1

Keywords

  • 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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