The effect of ownership level, concentration and owners’ identity on market liquidity in the UK capital market

Iskandrani, Majd Munir Mohammad The effect of ownership level, concentration and owners’ identity on market liquidity in the UK capital market. PhD thesis, University of Liverpool.

Text IskandraniMaj_May2015_2012161.pdf - Unspecified Available under License Creative Commons Attribution. Download (3MB)

Abstract

This study investigates the effects of ownership level, concentration and owners’ identity on stock market liquidity in the UK. The study also examines the effect of the recent financial crisis on the relationship between ownership level, concentration, owners’ identity and market liquidity in the UK. The sample includes 226 non-financial companies from the FTSE All-Share Index listed on the London Stock Exchange, over the period between 2003 and 2012. After controlling for two types of Endogeneity, i.e., simultaneity and unobserved heterogeneity, through the application and use of a pooled OLS year and industry dummies, this study finds the evidence suggesting that ownership level, concentration and owners’ identity are important determinants of market liquidity in the UK. The results suggest that insider ownership and ownership concentration are negatively correlated with market liquidity. In contrast, institutional ownership has been identified as positively correlated with market liquidity. While analysing the effect of owners’ identity on market liquidity, it was revealed that executive and non-executive directors’ ownership both decrease market liquidity. The findings also suggest that the existence of controlled shareholders (i.e., investment banks, government, pension fund, and foreign ownership) have a negative impact on firms’ market liquidity. However, the presence of free float shareholders in a firm’s ownership structure has a positive impact on market liquidity. As a result, this study regards the free float shareholders as uninformed investors whereas controlled shareholders and insiders are regarded as informed investors because they have access to a firm’s private information. After considering the effect of financial crisis, it was revealed that both the insider ownership and ownership concentration insignificantly negatively affect market liquidity in the pre-crisis, crisis and post-crisis periods of the recent financial crisis. However, institutional ownership had a significantly positive impact on market liquidity during the 2007-2009 financial crisis. With respect to insider identity, both executive and non-executive directors’ ownership have a negative impact on market liquidity. Nevertheless, controlled shareholders (i.e., investment banks, government, employee, pension fund, foreign) ownership had an insignificantly negative impact on market liquidity, whereas free float shares had an insignificantly positive impact on market liquidity during the recent financial crisis. Keeping in mind the importance of market liquidity in the economy, it can be argued that the findings of this research have implications for the current and potential investors, policymakers and practitioners. As a result, the outcome of this study demands that firms should pay more attention to their ownership structure disclosure policy and improve quality of the disclosed information as much as possible.

Item Type:	Thesis (PhD)
Additional Information:	Date: 2015-05-28 (completed)
Subjects:	?? HG ??
Depositing User:	Symplectic Admin
Date Deposited:	27 Aug 2015 09:39
Last Modified:	17 Dec 2022 01:33
DOI:	10.17638/02012161
URI:	https://livrepository.liverpool.ac.uk/id/eprint/2012161