Ownership concentration and stock liquidity in an emerging market

Abstract

This study explores the liquidity influence of ownership concentration in the Vietnamese stock market where equity holdings are highly concentrated and under weak protection for minority shareholders. We find that stocks of firms with higher concentrated ownership are less traded in terms of lower share turnover and trading volume. This effect implies the real friction channel, rather than the information friction channel, of ownership concentration impairing stock liquidity. It is from the emerging market context of Vietnam that large shareholders are usually institutional investors who have long-term investment horizons. The result is robust to the different types of blockholders, alternative measures of ownership concentration and stock liquidity, and several regression estimators. It is arguable that Vietnamese firms face a trade-off between the monitoring benefit and the liquidity detriment when opting for concentrated ownership structures.