Investor protection and the value impact of stock liquidity

This paper investigates the effect of investor protection on the value impact of stock liquidity. Using a sample of firms from 40 countries for the period between 1996 and 2010, we show that investor protection is positively associated with the value impact of stock liquidity. This association is robust to the difference-in-differences approach based on a natural experiment. Further evidence shows that the positive effect of home-country investor protection on the liquidity–valuation association attenuates in countries with globally integrated capital markets.