Financial Constraints, Stock Liquidity, and Stock Returns

Li, Xiafei; Luo, Di

doi:10.2139/ssrn.2395267

Cited by 5 publications

(6 citation statements)

References 51 publications

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“…We estimate cash flow risk as the standard deviation of the cash flow-to-assets ratio over the previous 10 years. We select firm size and dividend payout ratio as the proxies for financial constraints following Almeida & Campello (2007), Almeida et al (2004), Denis & Sibilkov (2010), Faulkender & Wang (2006), Hahn & Lee (2009), and Li & Luo (2019). 5 Small firms and those with low dividend payout ratios are likely to be financially constrained firms because they have poor access to external finance.…”

Section: Measures Of Precautionary Motivesmentioning

confidence: 99%

Increase in cash holdings of U.S. firms: The role of healthcare and technology industries

Luo

2020

Journal of Business Research

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Section: Measures Of Precautionary Motivesmentioning

confidence: 99%

Increase in cash holdings of U.S. firms: The role of healthcare and technology industries

Luo

2020

Journal of Business Research

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“…Livdan et al (2009) find strong support for the findings of Whited and Wu (2006). However, in a recent paper, Li and Luo (2019) argue that the crucial driver of the relationship between financial constraints and stock returns is stock liquidity.…”

Section: Association Between Financial Constraints and Firm Performancementioning

confidence: 86%

Firm Performance, Financial Constraints, and Dual-Class Share Structure

Ahamed¹

2021

Preprint

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This thesis addresses two aspects of financial constraints focusing, firstly, on the impact of financial constraints on firm performance and, secondly, on the impact of dual-class share structure on financial constraints. The first issue has been addressed in a large number of research studies, but the results are mixed. This study, therefore, conducts a meta-analysis of those earlier studies to provide a summary view of the results which, in contrast to narrative reviews of the empirical literature, provides an objective overview. The second issue examines the impact of dual-class share structures on financial constraints. The period of the global financial crisis is used to test the impact of the state of the economy on that relationship. To examine the impact of financial constraints on firm performance, 26 empirical studies with 189 effect sizes representing listed firms have been analysed. The study finds that overall there is a positive relationship between financial constraints and firm performance. The study also shows that the set of market-based measures of firm performance has a significant negative impact on the relationship, compared with the set of accounting-based measures. In terms of the financial constraints measure, the set of external financial constraints measures have a positive and highly significant impact on the relationship. The meta-regression analysis suggests that the choice of measure, regional difference, journal quality and publication status all have a significant impact on the relationship, and explain the variation in the association. To examine the impact of dual-class share structures on financial constraints the study analyses a sample of non-financial US firms over the period 2002-2018. Share structure is measured by the existence of a dual-class structure and also by excess voting rights and the proximity of the superior class shareholders in such structures. The study also shows that if financial constraints are measured by the WW index, irrespective of how dual-class share structure is measured, it increases the level of financial constraints. Similar results are obtained where financial constraints are measured by the KZ and SA indexes, except where dual-class share structure is measured by the proximity of superior class shareholders. The study also finds that if financial constraints are measured by the WW index, dual-class had a reduced impact during the period of the global financial crisis, thus, providing support for the propping theory. However, if financial constraint is measured by the SA index, dual-class share structure appears to have an increased impact during the GFC years. Among the additional tests, the HM index has been used as a measure of financial constraints, and the findings show that the impact of dual-class structures on financial constraints appears to be driven by their effect on debt constraints. The study also shows that firm age moderates the impact of dual-class share structures if financial constraints are measured by the WW index. The KZ, WW, and SA indexes are based on firm characteristics and, therefore, the study also tests for an impact of dual-class structures when financial constraint is measured by a text-based index, the BLM index. However, the results do not provide evidence of an impact in that case.

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“…(Ngoc, et al, 2021). (Karim and Rashid, 2021, Nadarajah et al, 2021, Naik P. et al, 2020, Pham et al, 2020, Dang et al, 2019, Ali et al, 2017 (Li and Di, 2019, Sarlak and Ahmadi, 2016, Amihud et al, 2015 . (Cheung et al, 2019, Brogaard et al, 2017, Ochenge et al, 2020 (Xia, 2021, Mbanyele and Wang, 2022, Im, et al, 2021, Naik, et al, 2020, Qin, 2020, Nadarajah, et al, 2021, Ochenge, et al, 2020, Lai and Trang, 2019, Kumar and Misra, 2019, Zhang, et al, 2019) :…”

Section: ‫كمكن‬ ‫تقدم،‬ ‫مما‬ ‫التالى:‬ ‫حو‬ ‫ال‬ ‫على‬ ‫ابع‬ ‫الر‬ ‫...mentioning

confidence: 99%

“…‫السابقة‬ ‫اسات‬ ‫الدر‬ ‫أشارت‬ ‫الصدد،‬ ‫هذا‬ ‫وفى‬ (e.g., Chen et al, 2020, ElBannan, 2017, Nadarajah et al, 2018 Ochenge et al, 2020, Cheung et al, 2019, Brogaard et al, 2017, Li and Di, 2019, Sarlak and Ahmadi, 2016, Jiang et al, 2017, Rahman and Rajib, 2018, Saad and Samet, 2017 ‫تفع‬ ‫المر‬ ‫السيولة‬ ‫تؤدي‬ ‫حيث‬ ، ‫إلى‬ ‫ة‬ ‫من‬ ‫توسع‬ ‫أن‬ ‫المرجح‬ ‫من‬ ‫التي‬ ‫و‬ ‫الخصم‬ ‫معدالت‬ ‫انخفاض‬ ‫وبالتالى‬ ‫المطلوبة،‬ ‫ائد‬ ‫العو‬ ‫انخفاض‬ ‫اإليجابية‬ ‫الصافية‬ ‫الحالية‬ ‫القيمة‬ ‫ذات‬ ‫الشركات‬ ‫مشروعات‬ (Ochenge et al, 2020) . ‫توصلت‬ ‫كما‬ ‫اسة‬ ‫در‬ (Cheung et al, 2019, Brogaard et al, 2017 (Mali and Lim, 2022) .…”

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أثر كفاءة الشركات وتقلبات الأرباح على العلاقة بین سیولة الأسهم وتكلفة الملكیة- بالتطبیق على الشركات المدرجة بالسوق السعودى

على¹

2022

مجلة الاسکندریة للبحوث المحاسبیة

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Study Objective and Methodology: This study aims to analyze the relationship between stock liquidity and equity cost and the modified role of firm efficiency and earnings volatility, using data from a sample of 100 companies listed on the Saudi Arabia stock market during the period from 2012 to 2019. The researcher measures the stock liquidity based on Trade Volume (as a direct measure), the bid and ask stock prices differences (as indirect measure). The earnings volatilety was also measured by the abnormal returns level, moreover, the dividend model was used in calculating the equity cost (EC).Study Results: The results show that there is a negative significant effect of the firm efficiency on the bid and ask stock prices differences, and there is a positive significant effect of bid and ask stock prices differences on EC, which reflects the high cost of investments in light of the lack of stock liquidity. In other words, the high return rate required by investors with is increased in the stock's liquidity weakness. On the other hand, there is a negative significant impact of the bid and ask stock prices differences on EC in the presence of the firm efficiency, which reflects its role as a modifying variable, and it's an important tool to compensate for the weak stock liquidity from Investors' perspective.Moreover, the results show that there is a negative significant effect of abnormal returns on the trade volume, and there is a negative significant effect of the trade volume on the EC, which means that the high trade volume enables firms to obtain the necessary funds at the lowest possible cost and attract new investors. On the other hand, there is a positive significant effect of the stock trading volume on the EC in the presence of abnormal returns, which reflects its role as a modifier, and it's a negative indicator in the investors' evaluation and interpretation of the stock's high liquidity, which drives firms to make more dividends to facilitate obtaining the necessary financing by investors.The study Importance and Contribution: The study contributes to the accounting literature by providing evidence on the importance of improving stock liquidity in reducing the cost of capital. In addition, it highlights the important role of firm efficiency in reducing the EC, especially in the case of poor stock liquidity. It also contributes to focusing attention on the increase in the EC, despite the increase in the stocks' liquidity, especially with increase in the stock's returns volatility.

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Financial Constraints, Stock Liquidity, and Stock Returns

Cited by 5 publications

References 51 publications

Increase in cash holdings of U.S. firms: The role of healthcare and technology industries

Increase in cash holdings of U.S. firms: The role of healthcare and technology industries

Firm Performance, Financial Constraints, and Dual-Class Share Structure

أثر كفاءة الشركات وتقلبات الأرباح على العلاقة بین سیولة الأسهم وتكلفة الملكیة- بالتطبیق على الشركات المدرجة بالسوق السعودى

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