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| Stock Liquidity, Corporate Governance and Firm Operating Performance: Theory and Evidence Based on the Threat of Exit and Lock-in Effect |
| GU Nai-kang CHEN Hui |
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Abstract Based on the conflict between controlling shareholders and small& medium shareholders, the paper analyzes the two effects of stock liquidity-"threat of exit" and "lock-in effect". The result shows that when the stock liquidity is low, the exit strategy of the institutional investors is infeasible, so the institutional investors have to monitor listed companies, i.e. the "lock-in effect", and the lower the stock liquidity, the stronger the effect. However, the exit strategy becomes credible along with the enhancing of the stock liquidity, so the institutional investor can set a trigger strategy to force managers to do their duties, and this effect is called "the threat of exit", and the higher the stock liquidity, the stronger this effect. As a whole, the relationship between stock liquidity and operating performance is a U-shape. On the basis of high frequency data of listed companies from Shenzhen and Shanghai stock markets from 2003 to 2007, the paper tests the above hypothesis by e
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Received: 02 November 2009
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Corresponding Authors:
CHEN Hui
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2010, Vol. 1 
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