Business, Management and Accounting
4 years ago

Stock liquidity boosts investment opportunities, benefiting shareholders with expanded growth prospects.

Financial Management
Stock Liquidity and Investment Opportunities: Evidence from Index Additions
John R. Becker‐Blease, Donna L. Paul

Paper Summary

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Stock liquidity affects how companies make investment decisions. When stock liquidity increases, firms tend to spend more on projects. This is because higher liquidity lowers the cost of capital, making more projects profitable. Essentially, better liquidity leads to more growth opportunities for shareholders.