Journal of Corporate Finance Vol. 70 2021
Stock liquidity, empire building, and valuation
Abstract
We conjecture that high stock liquidity negatively affects firm valuation by inducing inefficient investment. Using takeovers of public targets to study the empire-building motive, we find that a liquid firm is more likely than an illiquid firm to acquire a public firm. Such a takeover by a bidder with higher stock liquidity destroys bidder value to a larger degree. These patterns occur in both stock and cash acquisitions and hold after we use decimalization of tick size as a quasi-exogenous shock to stock liquidity. Finally, we show that financial constraints and corporate governance play important roles in the effects of stock liquidity on empire building in mergers and acquisitions.
- DOI
- 10.1016/j.jcorpfin.2021.102051
- Volume
- 70
- Pages
- 102051
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref