Block ownership, trading activity, and market liquidity
Date
2009
Authors
Brockman, P.
Chung, D.
Yan, X.
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Journal Title
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Journal article
Citation
Journal of Financial and Quantitative Analysis, 2009; 44(6):1403-1426
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Paul Brockman, Dennis Y. Chung, and Xuemin (Sterling) Yan
Conference Name
Abstract
<jats:title>Abstract</jats:title><jats:p>We examine the impact of block ownership on the firm’s trading activity and secondary-market liquidity. Our empirical results show that block ownership takes potential trading activity off the table relative to a diffuse ownership structure and impairs the firm’s market liquidity. These adverse liquidity effects disappear, however, once we control for trading activity. Our findings suggest that block ownership is detrimental to the firm’s market liquidity because of its adverse impact on trading activity—a real friction effect. After controlling for this real friction effect, we find little evidence that block ownership has a negative impact on informational friction. Our results suggest that the relative lack of trading, and not the threat of informed trading, explains the inverse relation between block ownership and market liquidity.</jats:p>
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Copyright © Michael G. Foster School of Business, University of Washington 2009