Social Science Job Candidate

I develop a model that investigates the relation between corporate policies and secondary stock market liquidity. I show that secondary market illiquidity limits a firm's ability to hold precautionary liquidity, exacerbates financial constraints, reduces investment, and decreases corporate value. I also show that this drop in firm value feeds back into the secondary market by deterring the participation of liquidity providers, thereby making the market more illiquid. The self-reinforcing nature of this relation gives rise to an internal-external liquidity loop, whereby corporate liquidity stimulates market liquidity, and vice-versa. The loop singles out a propagation mechanism between financial markets and the corporate sector.