Blockholders Ownership and Liquidity: Panel Smooth Transition Regression Model

According to the transaction cost theory, active management leads to a reduction in transaction costs and thus reduces the distance between the bids and ask gap. Also, on the contrary, based on the adverse selection hypothesis, when a group of shareholders has the advantage of information over another, there is an information asymmetric that will reduce liquidity. This study is primarily aimed at testing the mentioned theories. Using a panel smooth transition regression model, as a new econometric technique, we examined the data to explore the asymmetric impact of blockholders ownership on liquidity in the 148 firms for the period 2009 to 2018 from TSE. Our empirical results strongly rejected the null hypothesis of linearity, and the test for no remaining nonlinearity indicated a model with one transition function and two threshold parameters. The first regime (levels of blockholders ownership below 36.1 percent) showed that liquidity increases with institutional ownership while the trend was reversed in the second regime (levels of blockholders ownership above 36.1 percent). Blockholders are inherently good or bad for the capital market because their impact varies from diet to regimen, and it seems to be dependent on the percentage of ownership of blockholders and corporate characteristics.