Making the Intangible Tangible: Organizational Capital and Stock Liquidity

Abstract We propose an intangibility‐driven stock liquidity hypothesis and explore the role of organizational capital in influencing stock liquidity. Using a sample of 42,682 firm‐year observations, we uncover compelling evidence that firms' intangible organizational capital boosts stock liquidity. Our results remain robust across various endogeneity tests, including difference‐in‐differences, an instrumental variable and propensity score matching approaches. Our results are consistent when we consider alternative organizational capital and stock liquidity measures and different subsamples. Further, this positive relationship is more pronounced for firms with severe information asymmetry, weak corporate governance and deteriorating financial performance, supporting the theoretical arguments of the information asymmetry and agency theory, as well as resource‐based views of stock liquidity. Overall, our unique findings emphasize the significance of intangible capital in driving stock liquidity.