AAA Spark Meeting of the Regions

Does Social Capital Enhance Stock Liquidity—Trading Environment Resilience During a Crisis of Trust?

• In Event: Corporate Social Responsibility

Abstract

We examine whether social capital and trust provide a form of liquidity/trading resilience. Specifically, can social capital play a role in speeding the stock recovery process following activations of the market-wide circuit breaker (MWCB), which occurred at the beginning of the COVID-19 pandemic in March 2020. We find that stocks rebound more quickly after the trading halt for high-social capital firms than for other firms in terms of quality of the stock trading environment and promptness with which stock liquidity improved. This finding provides new evidence that social capital and trust can safeguard firms’ stocks against a potential liquidity drain and rapid deterioration in the stock trading environment under extreme market conditions.

Authors

• Robert Faff, Bond University

• Jianning Huang, University of Manitoba

• Pei Shao, University of Lethbridge

• Yuchao Xiao, Deakin University

• Fuzhao Zhou, Bowling Green State University