Does exposure to foreign competition affect stock liquidity? Evidence from industry-level import data

Abstract

We document a negative association between foreign competition and stock liquidity. Our results are robust to addressing endogeneity concerns. We identify deterioration in the information environment in response to an increase in foreign competition as the channel behind the main result. Specifically, we find that the negative association is more evident among firms that are more susceptible to the negative consequences of foreign competition and firms that are poorly monitored and have lower analyst coverage. Our paper contributes to the understanding of the externalities of trade liberalization for financial market quality.