Ownership level, ownership concentration and liquidity

We examine the link between the liquidity of a firm's stock and its ownership structure, specifically, how much of the firm's stock is owned by insiders and institutions, and how concentrated is their ownership. We find that the liquidity-ownership relation is mostly driven by institutional ownership rather than insider ownership. Importantly, liquidity is positively related to total institutional holdings but negatively related to institutional blockholdings. This finding is consistent with the hypothesis that while the level of institutional ownership proxies for trading activity, the concentration of such ownership proxies for adverse selection. (C) 2007 Elsevier B.V. All rights reserved.