The Influence of Stock Liquidity on Corporate Behavior inthe Chinese Market

As a result of the capital market's explosive growth, stock liquidity is now a majordriver of company conduct. This study examines how stock illiquidity affects businessdecisions in the Chinese stock market. Using data from 20 businesses listed on the Shanghaiand Shenzhen Stock Exchanges in 2014, we apply Amihud's illiquidity measure to investigatethe effect of stock illiquidity on corporate investment, financing decisions, and overallcompany performance. Our empirical analysis reveals that higher stock illiquidity isassociated with reduced corporate investment, increased reliance on debt financing, and loweroverall firm performance. These findings highlight the detrimental effects of stock illiquidityon corporate behavior, suggesting that illiquidity hampers access to external financing,increases capital cost, and weakens corporate governance. The study underscores theimportance of enhancing market liquidity to promote efficient capital allocation and corporategrowth. These insights are crucial for policymakers, investors, and corporate managersaiming to foster a more robust and efficient financial market environment in China.