ASSET LIQUIDITY, STOCK LIQUIDITY, AND OWNERSHIP CONCENTRATION: EVIDENCE FROM THE ASE

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Abstract

This paper examines how ownership concentration influences the relation between stock liquidity and asset liquidity. Liquid assets reduce uncertainty of assets in place and hence improve stock liquidity. However, liquid assets are less costly to turn into private benefits compared to other assets. Therefore, liquid assets may result in increasing the uncertainty of assets in place rather than reducing it. In this paper we examine the impact of asset liquidity on stock liquidity conditional on a company’s ownership structure using the context of Jordan. Jordanian companies listed in the ASE are mostly characterized by highly concentrated ownership. In the absence of investor protection, concentrated ownership allows shareholders with large ownership stakes to exercise control over the firm and hence may result in increasing the uncertainty of assets in place. The uncertainty regarding the usage of liquid assets in cash-rich firms leads to greater uncertainty regarding the firm’s cash flows and hence lower stock liquidity. The findings of this study show evidence that as ownership concentration increases asset liquidity becomes negatively related to stock liquidity.

Keywords: Stock Liquidity; Asset Liquidity; Ownership Concentration; Largest Shareholders; Jordan

How to cite this paper: Tayem, G., Tayeh, M., & Bino, A. (2016). Asset liquidity, stock liquidity, and ownership concentration: Evidence from the ASE. Corporate Ownership & Control, 14(1), 48-58. https://doi.org/10.22495/cocv14i1p5