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Institutional Investors, Earnings Quality and Asset Liquidity: Evidence from China’s Stock Market |
Dongmin Kong1(), Shasha Liu2(), Ting Lu3() |
1. Department of Finance, School of Economics, Huazhong University of Science and Technology, Wuhan 430074, China; 2. Department of Finance, Guanghua School of Management, Peking University, Beijing 100871, China; 3. Research Department, The People’s Bank of China, Beijing 100800, China |
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Abstract This paper investigates how institutional holding and earnings quality influence the liquidity of assets. Contrary to findings in developed markets, we document several novel results in China’s stock market: (1) institutional holding negatively affects assets’ liquidity, (2) earnings quality is negatively related with liquidity. Since earnings quality captures asymmetric information, low earnings quality induces high divergence in investor opinions and thus boosts market trading, and (3) interestingly, the effect of earnings quality on liquidity is greater if institutional investors’ holding is at a high level. Overall, our findings cast doubt on the conventional wisdom that institutional investors and earnings quality improve market liquidity. The results are robust to different measures and alternative model specifications.
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Keywords
institutional holding
earnings quality
liquidity
China's stock market
emerging stock market
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Corresponding Author(s):
Dongmin Kong,Email:kongdm@mail.hust.edu.cn; Shasha Liu,Email:sarahliu@pku.edu.cn; Ting Lu,Email:lting@pbc.gov.cn
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Issue Date: 05 September 2012
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