Ownership Structure and Stock Market Liquidity in France

This paper examines the effects of concentrated ownership structure and shareholder’s type on the French stock-market liquidity. The results show that ownership concentration negatively affects market liquidity suggesting that large shareholders are likely to exacerbate information asymmetry, widen bid-ask spreads and decrease stock market liquidity. The findings also show that the proportion of institutional investors has a positive effect on market liquidity. These investors are inclined to trade more frequently on their stocks and to shrink bid-ask spreads. These findings are in line with adverse selection and trading hypotheses and shed the light on the role of corporate governance devices to consider shareholder minority interest’s protection, which leads to improved stock market liquidity levels.