Block Ownership, Trading Activity, and Market Liquidity

Journal of Financial and Quantitative Analysis (Impact Factor: 1.77). 12/2009; 44(06):1403-1426. DOI: 10.2139/ssrn.1117285
Source: RePEc

ABSTRACT We examine the impact of block ownership on 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 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.

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