Stock Trading Cost and Stock Price: the Moderating Role of Institutional Investors

Document Type : Original Article

Authors

1 Associate Professor of Accounting, Shahid Bahonar University of Kerman, Iran

2 Ph.D. Student in Accounting, Mazandaran University, Babolsar, Iran

Abstract

The presence of institutional investors in companies' governance structure and financial markets is recognized as a guarantee for protecting minority rights and also more stock liquidity. On the other hand, recent studies claim that trading cost is a key criterion of performance evaluation and has a critical role in financial markets. In the current research, the relationship between stock price and stock trading cost, as well as the moderating role of institutional investors in this relationship has been examined. Considering the data characteristics of the research, the statistical sample includes 69 firms listed in Tehran stock exchange over the period of 2006-2015. The statistical analysis included multivariate linear regression. The results indicate that there is a weak positive relationship between stock trading cost and stock price. Moreover, the presence of institutional investors leads to a decline in stock trading cost. The latter finding implies that institutional investors, due to their superior ability to access information, and also taking over the role of managers' monitoring, would reduce the stock trading costs resulting from ask-bid spread. Finally, the other result indicates that institutional investors could make negative the relationship between stock price and stock trading cost.

Keywords

Journal of Iranian Accounting Review
Volume 4, Issue 15
September 2017
Pages 45-66

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