Liquidity and firm performance the case of vietnam

ABSTRACT This thesis aims to investigate the relation between liquidity and firm performance in Vietnam stock market.. This paper shows the negative correlation between liquidity and fir

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UNIVERSITY OF ECONOMICS HOCHIMINH CITY

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EÂ1

BÙI HỒNG THU

LIQUIDITY AND FIRM PERFORMANCE:

THE CASE OF VIETNAM

MASTER OF BUSINESS ADMINISTRATION

HO CHI MINH CITY, 2012

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UNIVERSITY OF ECONOMICS HOCHIMINH CITY

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BÙI HỒNG THU

LIQUIDITY AND FIRM PERFORMANCE :

THE CASE OF VIETNAM

MAJOR: BUSINESS ADMINISTRATION

MAJOR CODE: 60.34.05

MASTER THESIS SUPERVISOR : Dr VÕ XUÂN VINH

HO CHI MINH CITY, 2012

ACKNOWLEDGEMENT

I owe my deepest gratitude to my supervisor, Dr Vo Xuan Vinh, who with his wide research experience, suggested this topic to me Without his continuous support, encouragement, and enthusiasm, this research would hardly have been completed

I am indebted to Dr Tran Ha Minh Quan for his immeasurable amount of support and guidance during MBA course and this thesis I would like to thank M.Sc Nguyen Thanh Trung who willingly provided me with much assistance and encouragement during MBA course

I would like to thank Assistant Professor Nguyen Dinh Tho, Dr Tran Ha Minh Quan, Dr Pham Quoc Hung, Dr Nguyen Thi Mai Trang, Dr Nguyen Thi Nguyet Que for their valuable time as members of examination committee Their comments and advices are precious instruction for me to complete this thesis

I also express my warmest gratitude to my professors at Faculty of Business Administration and Postgraduate Faculty, University of Economics Hochiminh City for their teaching and guidance during my MBA course

I wish to thank warmly my classmates who show their teamwork spirit and willingness to help each other to complete our theses

Finally, this thesis is dedicated to my beloved wife who understands, encourages, and is patient especially in the difficult period of taking care of our newborn baby during my working

ABSTRACT

This thesis aims to investigate the relation between liquidity and firm performance in Vietnam stock market The debate on this topic is still open when many papers point out that there is a positive correlation and many researches show the opposite The number of researches that support for result of positive correlation is likely to be dominant This paper shows the negative correlation between liquidity and firm performance in Vietnam stock market; however, the result is not consistent over time The paper also finds that liquidity has a negative correlation with financial leverage and this implies that highly liquid firm tends to seek capital from the banks or bond issues Besides, there is a negative correlation between liquidity and operating income on assets indicating that illiquid firm tends to focus more

on corporate monitoring and has more profitability When examining the correlation further on each industry separately, we find that this correlation is only on five industries

Keywords: Liquidity, firm performance, operating income to price, financial

leverage, operating income on assets, Vietnam

CONTENTS

ACKNOWLEDGEMENT i

ABSTRACT ii

LIST OF TABLES v

ABBREVIATIONS vi

CHAPTER 1: INTRODUCTION 1

1.1 BACKGROUND 1

1.2 RESEARCH PROBLEM 3

1.3 RESEARCH OBJECTIVE 3

1.4 RESEARCH METHODOLOGY AND SCOPE 3

1.4 STRUCTURE OF RESEARCH 4

CHAPTER 2: LITERATURE REVIEW 5

2.1 INTRODUCTION 5

2.2 LIQUIDITY 5

2.2.1 Bid-ask spread 5

2.2.2 Turnover ratio 8

2.2.3 Trading volume 8

2.2.4 Daily zero return 9

2.2.5 Amihud illiquidity ratio 10

2.3 FIRM PERFORMANCE 10

2.4 LIQUIDITY AND FIRM PERFORMANCE 13

CHAPTER 3: RESEARCH MODEL 18

3.1 INTRODUCTION 18

3.1 VARIABLE CONSTRUCTION 18

3.1.1 Liquidity measures 18

3.1.2 Firm performance 19

3.1.3 Control variables 20

3.2 MODEL 21

CHAPTER 4: DATA AND RESEARCH METHODS 24

4.1 INTRODUCTION 24

4.2 DATA 24

4.3 RESEARCH METHODS 25

CHAPTER 5: RESULTS AND DISCUSSION 26

5.1 INTRODUCTION 26

5.1 DESCRIPTIVE STATISTICS AND CORRELATIONS 26

5.2 REGRESSION ANALYSIS RESULTS 29

5.2.1 Baseline Q specification 29

5.2.2 Baseline specification – components of Q 32

5.2.3 Baseline Q specification by industry 35

CHAPTER 6: CONCLUSIONS 37

6.1 INTRODUCTION 37

6.2 CONCLUSIONS 37

REFERENCES 40

APPENDIX A 44

APPENDIX B 45

APPENDIX C 46

LIST OF TABLES

Table 4.1: Variable definition 22

Table 6.1: Summary statistics 26

Table 6.2: Correlation matrix 27

Table 6.3: Ordinary least squares regressions for the model 29

Table 6.4: Ordinary least squares regressions for the components of Q 32

Table 6.5: Ordinary least squares regressions for Q by Industry 35

ABBREVIATIONS

CHAPTER 1: INTRODUCTION

1.1 BACKGROUND

Liquidity is one of the important factors that investors consider when they make decision on investment As defined by Amihud and Mendelson (2008), liquidity is the capacity of the assets that can be traded quickly and at low cost According to Fang et al (2009), the stock shares are the currency which commands both cash flows and control rights, the tradability of this currency plays a central role in the governance, valuation, and performance of firms The relation between liquidity and firm value is firstly documented by Amihud and Mendelson (1986) After this study, this relation draws more attention from other scholars There are many theoretical researches on this relation; most of them support the positive relation and few researches suggest negative relation In research indicating positive relation, liquidity supports the large shareholders to invest in large stake to become more majorities in voting contests; it leads to effective corporate governance (Maug, 1998), attracts the entry of the informed investors, in turn, this makes the price more informative and improve the decision of the firm managers, especially the firm with the uncertainty of cash flow in existing and future projects (Subrahmanyam and Titman, 2001; Khanna and Sonti, 2004) Moreover, liquidity makes investors trade at higher prices than more illiquid stocks (Holmstrom and Tirole, 1993), causes investors trade at a premium because liquid stocks are overvalued due to the

liquidity could be a sentiment indicator (Baker and Stein, 2004), reduces managerial opportunism because investors invest on the fundamental value of the stocks (Edmans, 2009) There are few research studies on negative relation, which conclude that liquid stocks facilitate the exit of shareholders, therefore, they do not want to monitor firm performance and leads to worse firm performance (Coffee, 1991), investors do not want to sell when the cost of monitoring is not covered and it causes the illiquidity in stock and better firm performance (Bhide, 1993), the speculators use liquidity as a mean to make profit in manipulating price down (Goldstein and Guembel, 2008) Hence, there are many papers on both positive and negative relation between liquidity and firm performance; however, most of these papers are about the theoretical models One of the first empirical papers investigating this relation is written by Fang et al (2009) supporting the positive relation between liquidity and firm performance in US stock market They use relative effective spreads as liquidity proxy and Tobin Q for measuring the firm performance The result is robust when they use alternative liquidity proxies: Amihud (2002) mean-adjusted illiquidity measure; the Lesmond

et al (1999) percentage of zero daily returns liquidity measure; and the relative quoted spread Their findings support the theory of stock-price feedback effect and performance-sensitive managerial compensation causality

1.2 RESEARCH PROBLEM

Over the world, there are not much papers that mention the empirical research on the relation between liquidity and firm performance after the first research of Fang et al (2009) This paper aims to fill the gap of lacking the empirical investigation in Vietnam stock market, one of the emerging stock markets in the world

1.3 RESEARCH OBJECTIVE

The objective of this paper is to examine the relation between liquidity and firm performance on Vietnam stock market with the sample of listed firms in Hochiminh Stock Exchange during the period 2007-2010

The above objective of this thesis leads to the research question:

RQ1: Does liquidity have effect on firm performance?

1.4 RESEARCH METHODOLOGY AND SCOPE

The subject of this research is all listed firm in Hochiminh in the period from 2007 to 2010 The sample size is 573 This paper uses quantitative research based on Fang et al (2009) model to investigate the relation between liquidity and firm performance We use various data analysis methods in conducting the research such as descriptive statistics, correlation matrix, and OLS regression with Eviews 6 for Windows

1.4 STRUCTURE OF RESEARCH

Chapter 2 reviews prior work of previous researches Chapter 3 selects the model for this paper Chapter 4 describes data collection and analysis methodology Chapter 5 contains the result and discussion of empirical tests while Chapter 6 concludes

CHAPTER 2: LITERATURE REVIEW

2.1 INTRODUCTION

Chapter 2 is to review the theories of liquid, firm performance, and the

relation between liquidity and firm performance in previous research studies

2.2 LIQUIDITY

According to Amihud and Mendelson (2008), liquidity is the capacity of the assets that can be traded quickly and at low cost In recent years, investors and scholars pay more attention to liquidity, and the research

on its relation with stock return is firstly documented in 1986 by Amihud and Mendelson (1986) After that, a large number of research studies have focused on it and its relation with stock returns and firm values Among of them, Eleswarapu and Reinganum (1993), Brennan and Subrahmanyam (1996), Datar et al.(1998), Chordia et al.(2001), and Fang et al (2009) are few well-known studies

There are a lot of methods to measure liquidity; in this paper, some main measurements are presented

2.2.1 Bid-ask spread

Suggested by Amihud and Mendelson (1986), bid-ask spread is the difference between lowest price that seller want to sell and the highest

price the investors want to purchase The higher the spread is, more transaction cost the investors must pay to complete the purchase, and this stock is considered as illiquid stock

Bid-ask spread can be measured by three formulas:

The quoted spread

The relative spread

The effective spread

The quoted spread is the simplest formula; it is the difference between

the lowest selling price and the highest buying price:

where QSi,t is quoted spread of asset i at time t

is ask quoted price of asset i at time t

is bid quoted price of asset i at time t

The shortcoming of quoted spread method is that it does not have the comparative capacity If the spread is the same for two firms with different prices, the firm with lower price should be low liquid than another

The relative spread is comparative method in comparing with quoted

spread, its formula as bellowing:

where RSi,t is relative spread of asset i at time t

is ask quoted price of asset i at time t

is bid quoted price of asset i at time t

is the mid price of asset i at time t

The effective spread is the difference between the natural logarithm of

actual price and the natural logarithm of the midpoint of the spread It is calculated after the transaction happened It measures the actual execution cost of the traders:

where ESi,t is effective spread of asset i at time t

is actual execution price of asset i at time t

is mid price of asset i at time t

The absolute value measures for the variance of both buying and selling prices

2.2.2 Turnover ratio

The method measures how many times the stock changes its owners, and

the higher the ratio is, the more liquid the stock has Datar et al.(1998)

suggest this method in their study, and it becomes more popular in later studies Turnover ratio is measured by the number of trading shares in one period by the number of share outstanding

where TRi,t is turnover ratio of asset i over the period t

is number of trading share of asset i over the period t

is number of share outstanding of asset i over the period t This method has some advantages Firstly, the daily transaction data to calculate is available for any stock exchange market Secondly, liquidity across stocks can be compared easily

2.2.3 Trading volume

Trading volume has been adopted by many studies (Brennan et al., 1998; Chordia et al., 2001)

It simply is the dollar volume trading in the period The stock with higher trading volume has higher liquidity However, it may be distorted

by high price stocks

2.2.4 Daily zero return

This method is constructed based on the concept that the return should

be larger than the cost that the investors pay when purchasing the stock Therefore, if the stock has more days of daily zero returns in one period,

it is considered as illiquid It is firstly introduced by Lesmond et al.(1999) and is used by some of later researches such as Bekaert et al.(2006), Fang et al (2009)

It is the proportion of number of days that zero return occurs by the number of trading day

where is daily zero return index of asset i over the period t

is number of zero return days of asset i over the period t

is number of trading days of asset i over the period t

2.2.5 Amihud illiquidity ratio

Amihud (2002) in his paper proposes one more ratio to measure the illiquidity of the stock This ratio is defined as the average ratio of the daily absolute return to the (dollar) trading volume on that day

where is the illiquidity ratio for stock i at year y

is number of trading days of stock i in year y

is the return of stock i in day d, year y

is the dollar trading volume of stock i in day d, year

Much of the research on performance measurement has come from organization theory and strategic management (Murphy et al., 1996) From organization theory, three fundamental theoretical approaches have been evolved

The first approach is goal-based approach This approach suggests that the firm evaluates its performance based on the goals it sets for itself (Etzioni, 1964) However, this approach is not comparative between different kinds of firm because each firm has its different goals (Murphy

et al., 1996) The second approach which is system approach has compensated for the weaknesses of the goal-based approach(Steers, 1975) However, both goal-based and system approaches do not match with the different expectations on firm performance of the stakeholders For this reason, the multiple constituency approach is evolved to satisfy the different interest of stakeholders (Connolly et al., 1980; Murphy et al., 1996)

From these three approaches of organization theory, Venkatraman and Ramanujam (1986) classify the measurement of business performance into 3 levels: financial performance, operational performance, organizational effectiveness

According to Venkatraman and Ramanujam (1986), financial performance measurement is “to use of simple outcome-based financial indicators that are assumed to reflect the fulfillment of the economic goals of the firm” This construct examines such financial indicators such as sales growth, profitability (reflected by ratios such as return on

sales, return on investment, return on assets, and return on equity), earning per share and so forth These indicators have been used in some researches (Demsetz and Lehn, 1985; Mehran, 1995) Since these financial indicators only base on the accounting basic, the indicators based on market price are more appropriate such as P/E, Market-to-book ratio, etc Many studies represent for this trend (Kudla, 1980; Montgomery et al., 1984) Moreover, the approach that combines both accounting and price-based indicators are widely used is Tobin‟s Q value, which is invented by Tobin (1969) It is measured by the market value of the firm assets divided by book value of its assets Many contemporary researches have been used this Q value (Kaplan and Zingales, 1997; Shin and Stulz, 2000; Gompers et al., 2003; Fang et al., 2009)

Operational performance measurement includes nonfinancial indicators

In this construct, measures would logically be market-share, new product introduction, product quality, marketing effectiveness, manufacturing value-added ratio, and other measures of technological efficiency within the domain of business performance (Venkatraman and Ramanujam, 1986)

According to Venkatraman and Ramanujam (1986), organizational effectiveness measurement is used “when and conflicting nature of organizational goals and the influence of multiple constituencies or

„stakeholders‟ are superimposed” This construct uses comprehensive factors to evaluate the firm performance such as importance of mission,

supportive policies toward the work force, appropriateness of organization design, working conditions, pay and benefits, positive supervisory practices, workforce loyalty and pride, organizational efficacy, customer oriented behavior (Parhizgari and Gilbert, 2004) Many of the models supported this construct (Steers, 1975; Zammuto, 1984; Hitt, 1988), but there is little consensus among these model Moreover, Steer (1975) indicates that this construct faces with eight major problems: construct validity, criterion stability, time perspective, multiple criteria, precision of measurement, generalizability, theoretical relevance, level of analysis

In summary, the measurement for firm performance now vary base on the objectives and the situation at which the studies are conducted In reality, it is difficult to obtain of accurate and complete data for the operational performance and organizational effectiveness measurement Therefore, scholars tend to use financial measurement as the major method to evaluate the firm performance, especially the combination of accounting and market base indicator, Tobin‟s Q ratio

2.4 LIQUIDITY AND FIRM PERFORMANCE

In recent years, liquidity is a famous topic for many researches However, the first research about this subject is just begun in 1986 by Amihud and Mendelson They study about the asset pricing and the bid-ask spread and find that asset return increase with the spread After their

study, many researchers continue their work Using the same proxy for liquidity (bid-ask spread) during the period 1961-1990, Eleswarapu and Reinganum (1993) discover that the proposed relationship between bid-ask spread and stock return is predominantly confined to the month January However, Lee (1993 ), Brenna and Subrahmanyam (1996) question about bid-ask spread proxy when they suggest that the quote bid-ask spread is a noisy measure of illiquidity because many large trades occur outside the spread and many small trades inside this spread That leads to alternative liquidity proxies such as trading volume (Brennan et al., 1998), zero daily return (Lesmond et al., 1999), turnover ratio (Datar et al., 1998; Chan and Faff, 2003), standard deviations of the turnover ratio and of trading volume, and the coefficients of variation of the turnover ratio and of trading volume (Chordia et al., 2001), the Pastor and Stambaugh (2003) liquidity measure, the Amihud (2002) illiquidity ratio, and the Liu (2006) liquidity ratio Almost all of research studies support the positive relation between liquidity and stock return

As we mentions above, many researchers focus on liquidity as a risk factor in pricing the stock, not in measuring the firm performance Therefore, there are a few research studies that mention about the relation between liquidity and firm performance Nevertheless, there are two directions of effect of liquidity on firm performance, both positive and negative sides In which, the positive effect has supported by many studies, while only few research has considered on the negative effect

The positive effect of liquidity on firm performance is first mentioned by Maug (1998) He proposes two effect of liquidity on firm control Firstly, liquidity facilitates the corporate control because it allows the investor become the large shares holder to correct managerial failure Secondly, high liquidity makes the large shares holder to dispose her stock rather than get involved to the corporate control In this proposal,

he investigates the relation between liquidity and firm control In the theoretical framework, he concludes more liquid stock results in more monitoring because monitoring cost is recovered through informed trading, and in turn, improves the profitability of the firm

Subrahmannyam and Titman (2001) study the feedback from stock price

to cash flows, an aspect of firm performance They point out that the increase of volume of liquidity attracts the entry of the informed investors, in turn, it makes the price more informative and leads to the improvement of the decision of the firm managers, especially the firm with the uncertainty of cash flow in existing and future projects

Khanna and Sonti (2004) investigate the feedback from stock price to

firm value They argue that large traders consider not only the current changes on stock price but also its further changes; therefore, they monitor more about the performance of the firm managers They also conclude that stock herding by institution or funds, which creates high liquidity and volatility, relaxes firm budget constraint, facilitates firms to acquire the larger targets, and improves managers‟ investment decision

Edmans (2009) examines the relationship between block holders trading

and managerial myopia in the circumstance of the U.S market where the dominant shareholding structure is one of small block holders In his research, he finds that small block holders also enhance firm value even they lack the control rights Since they trade on the fundamental value rather than current earnings, the managers are encouraged to undertake long-term investment instead of short-term interest

Continuing the above studies, Fang et al (2009) examine the effect of

liquidity on firm value measured by Tobin‟s Q ratio They divide the effect of liquidity on firm performance into two kinds of mechanisms, agency-based effect and feedback effect They also include the industry and firm effect, a control for idiosyncratic risk, a control for endogenous liquidity, and the use of alternative measures of liquidity for their research In the sample of 3174 firms from Center for Research in Security Prices (CRSP) in the years 1990, 1993, 1995, 1998, 2000, 2002, and 2004, they find that liquidity positively affects firm performance and operating profitability The we also point out that liquidity effects firm performance through stock price feedback effect and manager pay-for-performance sensitivity

However, in the positive effect, besides the agency-based effect and feedback effect, some studies suggest that the causality of liquidity in firm value by changing the discount rate Holmstrom and Tirole (1993) argue that the illiquid stock should be traded at a discount, this leads to high price-based value when the stock is more liquid Furthermore,

Baker and Stein (2004) suggest that high liquid stocks are overvalued, and then they should be traded at a premium

In contrast to the positive effect, there are a few research studies that mention about the negative effect of liquidity on firm performance In the agency-based causality theory, Coffee (1991) suggests that the institutions do not want to undertake the costly monitoring when they have the liquid stock that facilitates their exits Moreover, Bhide (1993) argues that active shareholders reduce the costs of agency problem by monitoring also reduce liquidity of stock because they do not want to sell

it when the cost of monitoring is not recovered In contrast, illiquid stock encourages the internal monitoring by preventing the exits of unhappy shareholders For the negative feedback effect, Goldstein and Guembel (2008) point out that the speculators may utilize liquidity of the stock by manipulating the price down that in turn leads the firm to cancel the project investment, and it results in the decrease of the firm value

The above papers suggest the following hypotheses:

H1: Liquidity has positive effect on firm performance

CHAPTER 3: RESEARCH MODEL

3.1 INTRODUCTION

Based on the results in the literature review chapter, this chapter presents the variables and model for this research Furthermore, it also reviews the theories of each variables being included in the model

3.1 VARIABLE CONSTRUCTION

3.1.1 Liquidity measures

As we discuss before, there are many methods to measure liquidity However, these methods based on bid-ask spread is not suitable with the Vietnam stock market Therefore, the turnover rate is used as the main method to construct liquidity measurement

The turnover rate, TR, is calculated by first sum all of the number of trading of stock i in the period t, and then divided by the average number

of share outstanding in the period t

3.1.2 Firm performance

As first proposed by Kaplan and Zingale (1997), a proxy of Tobin‟s Q is used as main measure for firm performance After that, the proxy for Tobin‟s Q (ratio between the market value of the assets and replacement costs of these assets) has been used widely to measure the firm performance in many studies (Shin and Stulz, 2000; Gompers et al.,

2003; Fang et al., 2009) The numerator of Q, the market value of assets,

is defined as market value of equity plus the book value of assets, then minus the book value of equity and deferred taxes The denominator of

Q, the replacement cost of asset, is assumed to be the book value of the assets In order to analyze more details of firm performance, we follow the method of Fang et al (2009) by breaking down Q value into three components as:

The detail of this formula is described as Appendix A

The operating income-to-price ratio, OIP, is equal to operating income after depreciation divided by market value of common equity The financial leverage ratio, LEVERAGE, is defined as market value of equity divided by market value of assets The operating income-to-assets ratio, OIOA, is measured as the fraction of operating income after depreciation and book value of assets The Q value and its components are measured at annual basic

3.1.3 Control variables

The control variables that are firm‟s size and age used by Shin and Stulz (2000), Gompers et al.(2003), Fang et al (2009) to measure Q value are used in this paper

The firm‟s size assumed as book value of total assets is measured by its natural logarithm, LN_BVTA The firm‟s age defined as the number of years from year of establishment to the fiscal year is measured by its natural logarithm, LN _AGE

The stock return momentum is added to the model as the control variable due to its effect on the firm performance Gutierrez and Prinsky (2007) suggest that there are two kinds of the momentum One is relative momentum across the firms and another is the firm-specific abnormal momentum The relative momentum is the momentum of excess return

of one stock in comparing with other stocks without any good specific information Therefore, the uninformed investors often overvalue them and decide to buy them It is good opportunity for the institutional investors moving around the relative momentum stocks to get their profits The institutional investors buy stocks when they rise and start selling them when they are underperformed In this case, the momentum is more significant affecting the firm value than liquidity The firm-specific momentum follows corporate events such as earnings surprises, dividend changes, share repurchases, stock splits, and seasoned equity offerings continue for years without reversing, and is often under reacted The excess for relative momentum stock often

firm-reverse after twelve months while firm-specific momentum last four to five years (Gutierrez and Prinsky, 2007) Hence, to control for this possibility, especially for relative momentum, we include the momentum, CUMRET, as a control variable It is defined as returns for the six months prior the fiscal year for firm i‟s stock

Firm idiosyncratic risk, is included as the control variable in the firm performance regression The effect of the idiosyncratic risk on firm value

is mentioned by Merton (1987) The later study by Spiegel and Wang (2005) confirm this notion, and also point out that both liquidity and idiosyncratic risk have effect on returns, however, the impact of idiosyncratic risk is much more significant than liquidity Therefore, firm idiosyncratic risk, IDIORISK, is included in the firm performance regression as the control variable In Spiegel and Wang‟s research, idiosyncratic risk is the standard deviation of excess monthly return regressed by OLS method on market risk premium and two other Fama-French factors, SMB and HML In this paper, the regressions are done

on 12 monthly returns prior to the year-end with a minimum of 10 monthly return observations required

3.2 MODEL

Following the model from Fang et al (2009) and from above variables,

we construct the model for this research as following:

where i refers to the specific firm , and t refers to the specific fiscal year

Table 4.1 Variable definition

Variable Definition

at fiscal year-end, where market value of assets is defined as market value of equity plus book value of assets minus book value of equity minus balance sheet deferred taxes

value of equity measured at fiscal year-end

LEVERAGE Market value of equity divided by market value of

assets measured at fiscal year-end

value of assets measured at fiscal year-end

shares in the period of the fiscal year, and then divided

by the number of share outstanding

LN_AGE Natural logarithm of firm‟s age, defined as number of

years from year of establishment to the fiscal year LN_BVTA Natural logarithm of book value of total assets

measured at fiscal year-end

IDIORISK Standard deviation of OLS regression residuals of

excess monthly returns of firm i‟s stock on the market risk premium, size, and book-to-market ratio The OLS regressions are estimated using 12 monthly returns prior

to the year-end with a minimum of 10 monthly return observations required

CUMRET Returns for six months prior to fiscal year-end for firm

i‟s stock

Dependent variables: firm performance value presented by Q value, and in this paper, Q is divided into three components: operating income to price ratio, financial leverage ratio, and operating income on assets ratio

Independent variable: liquidity measured by turnover ratio

Control variables: age, total assets, idiosyncratic risk, and cumulative return