Stock Liquidity and Firm Value Evidence from Automobile Sector of Pakistan

Tahir M

Published on: 2020-03-31

Abstract

This research studies the stock liquidity impact on firm value of Automobile assembler industry of Pakistan. We have applied Pooled Ordinary Least Square regression method on the financial data of Automobile assembler sector of Pakistan over the period 2004-2018. This paper fills the gap in Pakistani Automobile assembler sector literature by providing latest evidence on impact of stock liquidity on firm value by using to-date available data. The liquidity, which is our main independent variable, shows positive and highly significant relationship with firm value. If firm’s stocks are liquid in nature, these can be sold in market at any time without any delay and firm can generate enough capital to fulfil its financial needs. Investors trade the shares more aggressively when stocks are more liquid, which in results, improved firm’s value and relax the financial constraints. The empirical results show leverage and size have negative affect on the firm value of Pakistani Automobile assembler sector.

Keywords

Firm value; Stock liquidity; Automobile assembler

Introduction

The Automobile assembler sector has been an active and growing industry in Pakistan for a long time, however not much established to be included in the noticeable list of the world top automobile assemblers. Production volume has been increased in the Pakistani automobile assembler sector, but application of technology remains low. After the oil and gas sector, the automobile assembler sector in Pakistan is the second-largest taxpayer in the country. This study examines whether stock market liquidity affects the firm value of non-financial listed firms Automobile assembler sector of the Pakistan Stock Exchange (PSX). Liquidity refers to the ease by which an asset can sold immediately after purchase without lowering the price and without incurring transaction costs [1]. Liquidity is the life force of security markets from the standpoint of an investors, traders and other parties, a company’s securities that are more liquid attracts more investors who trade with an aim to profit from the price appreciation caused by low cost. On other hands, the lower the liquidity, mean the higher the required rate of returns his higher return is to compensate investors for bearing the illiquid risk. This higher required rate of returns implies a lower market value for illiquid companies [2]. The liquidity permits investors to gather large amounts of stocks, to become block holders, and exploit on monitoring activities to improve firm performance [3]. We rely on a proxy Tobin's Q as the most popular tool to measure firm value. The founder of the theory is James Tobin in 1969. Tobin's Q is a ratio between the market value and replacement value of the same physical asset. The ratio tells the nexus between financial markets and markets for goods and services. High Tobin Q values encourage companies to invest more in the capital because they are "worth" more than the price they paid for them. On the other hand, if Tobin's Q is less than zero, the market value is less than the recorded [4-6]. Firstly, we find the stock market liquidity impact on firm value. This study finds appositive impact stock liquidity on firm value. If firm’s stocks are liquid in nature, these can be sold in market at any time without any delay and firm can generate enough capital to fulfil its financial needs. The most dominant explanation specified for a negative correlation between stock liquidity and returns is that illiquid stocks have higher transaction costs or higher sensitivity to a liquidity risk factor [7]. Then we find financial leverage impact on firm value. Financial leverage reflects the amount of debt used in the capital structure of the firm. Debt carries the fixed obligation of interest payment. Thus, financial leverage increases as the fixed financial expenses of a firm increases i.e. interest expenses increases as a higher amount of debt is incurred [8]. First, we confirm the relationship between stock liquidity and firm value documented in the literature. Second, I investigate the relationship between Leverage ratio and firm value. Thirdly, find the Size impact on the firm value then; find operating income to price ratio (OIP) and operating income on asset ratio (OIOA) impact firm value. Size shows a negative impact on firm value. Therefore, Shams, 2016 also the negative impact on the value of the firms in Pakistan, because there are a high monitoring cost and low level of communication. My sample consists of 11 non-financial listed firms Automobile assembler sectors from Pakistan stock exchange (PSX). Then we take the data annual financial statement over the period 2004-2018 in the Automobile assembler sector of Pakistan. The main findings are reliable with my hypotheses. We show how stock liquidity effects on firm value in the Automobile assembler sector of Pakistan. Thus, our results provide no support for the hypothesis we conclude that stock liquidity improves firm performance where liquidity stimulates the entry of informed investors who make prices more informative to stakeholders. Liquidity also improves firm performance by increasing the efficiency of performance. In the next section, some literature review related to the stock market liquidity and firm value will be provided, leading to hypotheses development. In the third section detail of data and methodology will be discussed. In the fourth section, results and discussion will be provided and in section five conclusion of the study will be provided. At the end, references of the related literature will be given.

The Objective of the Study

The key aim of this study is: To check stock liquidity impact on firm value in Automobile assembler sector of Pakistan.

Significance of the Study

The association between stock liquidity and firm value may vary from country to country. The managerial view is very important for better firm value and well- organized management of liquidity. The high stock market liquidity increases the firm value. Liquid stocks are traded higher prices, which lead to higher firm value [6]. This research will try to find the nature of the association between stock market liquidity and firm value. This documentation will help to thoroughly plan trade strategies. More, this study will support management to see the most important issues to be considered minutely to caring decisions for better management of stock liquidity and firm value.

Literature Review and Hypothesis Development

The stock market liquidity positively affects firm performance. Since stock shares are the currency that directs both cash flow and control rights, the tradability of this currency plays a vital role in the governance, valuation, and performance of firms. The liquid markets have been shown to permit non-block holders to intervene and become block holders [3]. The stock liquidity positively affects firm performance. Liquidity increases the firm performance-sensitive managerial compensation and information content of market prices [5]. If engagement’s compensation tied to current stock prices, then increased liquidity increases the cost of opportunism to managers by facilitating informed selling or ‘‘dumping. The differentiating characteristic of the causative agency theories is they predict that the effect of liquidity on performance related to the extent of the agency conflict within the firm [9]. The source of information by public trading can enhance large shareholders' incentives to undertake value-increasing activities that are high cost privately. This information grows the liquidation value of the insider stake more sensitive to his activity, which improves his incentives. While going public decreases the insider’s stake, it may ultimately increase his incentives when liquidation is more likely, or more significant [10]. The liquid market can create extra informative stock prices, an important condition to create proper incentives for insiders and reduce large shareholders’ cost of monitoring managerial decisions [11]. Illiquidity markets, transactions have larger price effects and are subject to higher transaction costs. As higher price effect and transaction costs increase the price at which stock can bought back, less liquid stocks will provide less opportunity for cost savings from open market repurchase timing than more liquid stocks. The positive relationship between stock market liquidity and companies’ opportunity to time repurchases [12]. The stock liquidity and corporate governance influence firm value. Further, they find an empirical relation between firm value and stock liquidity. Finally, they show results that help better corporate governance's positive impact on firm value and find the liquid stock market in increase firm performance for the real estate investment trust industry. The higher firm value for firms with more liquid stocks does not appear to stem from better operating performance or profitability. The greater firm value for more liquid stocks increases the stock prices to some extent than better operating performance. Secondly, higher firm value effects appear to lean about a pricing base mechanism. The Investor value of liquidity, trading liquid stocks at higher prices which lead to greater value for the firms [6]. Stock liquidity could be a sentiment indicator. Further, if high liquidity stocks are overvalued which is why they trade and lower expected returns in the future. If higher firm values for firms with more liquid stocks are based on illiquidity risk or investor sentiment, high liquidity stocks should have a higher price- to-operating income ratios but similar operating profitability ratios and financial leverage as low liquidity stocks. Later, on average liquid stocks have an alike price– to-operating income ratio as less liquid stocks but different profitability ratios and financial leverage, sentiment and illiquidity risk do not show to be explanations for the greater firm values of more stocks liquid [13]. The pecking order and trade-off theories guide the cash holding decisions of the firm. The amount of cash held by firms is positively affected by the investment opportunity set and negatively affected by the number of liquid asset substitutes and leverage [14]. They finds the impact of stock liquidity to financially constrained firms. Most financially constrained firms to contain less liquid stock however, those firms greater repurchase intensity are more likely to unconstrained ex-post. These firms take steps to improve stock liquidity. Strong evidence firms can affect stock liquidity by engaging in share repurchases that alleviate information asymmetry. Particularly true for firms that are most weak to, and most affected by, information asymmetry. Further, explain the counter-intuitive detail about share repurchase in constrained firms. Although share repurchases add financial leverage and reduce cash balances financially constrained firms to appear to mainly sensitive decline the corporate liquidity. However, acting as buyers of last resort those firms improve their stock liquidity and improvement their financial status [15]. The positive relationship between a stock and asset liquidity. Stock and asset liquidity depend on a firm’s investment, in particular, reducing the valuation of uncertainty if not reinvested within assets place and improve stock liquidity. However, the recovery of liquid assets will create further uncertainty about future assets and less stock liquidity [16]. The stock liquidity restraint's extra leverage by both reduces strengthening the exit threats of block holders and asymmetry information. They also find the impact of stock liquidity on excess leverage is sensitive to the level of agency conflicts between controlling shareholders and minority investors. Finally, the evidence that by stock liquidity help to reduce such agency conflicts, the effect should be greater for the firms with higher agency cost [17]. They estimate the direct and indirect impact on firm value, here, a direct impact of abundance of cash on firm value is negative, on the contrary, indirect impact using liquidity is positive. Literally, if a firm having an abundance of cash reserves and well-managed governance this will survive firm at the abnormal situation. The strong argument for managing the daily operation in case of deep leaf in the markets [18]. Indicate the informed traders cause the effect of their trade on managerial actions, trading more aggressively and thus making prices more informative. This response effect expands operating performance and eases financial constraints, resulting in greater firm value [19]. The excess liquid stocks earn a lesser future return. Hence, investors are advantage from stock liquidity because liquidity reduces the risk, and firms are more equity issues. If their stocks are liquid then investors are willing to pay a high price for the shares [20]. They estimate the impact of asset liquidity in innovation for firms. There are find strong evidence U.S non- financial firms 1980 to 2013 if assets are highly liquid firms have more investment in innovation. These findings show if firms hold more liquid assets provide incentives for firms to be innovative in the future. Because liquidity of asset reduces the effect of cash flow uncertainty and reduce raising external equity financing [21]. Reduce the capital raising cost encouraged the firms to improve stock liquidity [22]. Corporate governance impacts firms share prices and institutional investors. Institutions have held a firm share increase with its governance quality. Poor firm’s governance earned negative abnormal returns and powerful governance firms have earned positive abnormal returns. The move of demand institutional investors from stocks of poorly governed companies to the stock of better-governed companies. Increase the share prices of better governance firms and decrease the share prices of poor governance firms [23]. Liquidity is a risk factor because it reflects stock sentiment. The information quality nonlinearly associated with the liquidity of a stock. Differences based on the level of quality information. Stock liquidity stronger affects when the level of information shorter. Stocks with extreme high and low information risk tend to have less liquidity. Stock liquidity and corporate governance depend on the level of quality information. While the quality of information level becomes lower the effect of corporate governance on stock liquidity moves positive to negative. Fundamentals of financial leverage also effect on stock liquidity. While the financial leverage becomes a larger effect for the book-to-market ratio on stock liquidity shift from positive to negative [24]. Some firms are costing less because of cash shortages, while others are over- investing in others due to administrative discrimination. The belief that the positive relationship with cash flow investments was due to the role of financial resources Burcin 2004. The variation in liquidity changes across the treatment and control groups caused by exogenous shock. Higher stock liquidity can lead to significant firm value improvement [23]. Stock liquidity effect to firm investment decision in the context of Vietnamese. When a firms making corporate investment decision then they follow the signal of the stock market. Higher stock market liquidity prefers to invest more in total and fixed assets but less in inventory. Stock market liquidity positive effect on fixed assets and total assets improvement while showing a negative impact on inventory improvement [25]. In similar firm’s liquidity shows an important role in investment decision policy [26]. Find the effect of equity liquidity on the firm’s investment decisions. Equity liquidity positive affects in investment decisions of operating firms in Pakistan. Suggest those stocks are more liquid do more invest. These firms’ stock is liquid and required less premium and decreasing the cost of capital because these firms raise required capital easily by issuing new equity. The several economic factors may have a disgraceful impact on the profitability of Nigerian firms, as such, the use of debt financing in such firms may yield negative impacts such as bankruptcy as well as low firm value [8]. Financial leverage has a negative and significant effect on firm ROE and financial leverage has a positive and significant effect on firm Roath high-interest rate and more amount of debt decrease the value of equity and negative impact on firm performance. There is a gap in the literature on Pakistani automobile assembler sector. No one up to date has investigated the stock market liquidity impact on firm value. To bridge this gap, we are first to check this relationship in context automobile assembler sector of Pakistan. Secondly, there is no study on this topic particularly the automobile assembler sector to the best of our knowledge, which has used the latest financial data of all Pakistani automobile assembler sector till 2004 to 2018 to provide to date evidence on factors affecting the firm value of Pakistani automobile assembler sector. Numerous authors as well as present empirical evidence to supports a positive link between stock market liquidity and firm value using data from advanced countries. For example, Nguyen employ US data and Nguyen utilize Australian data to provide further insight into this nexus. However, these studies use the context of advanced countries where stock markets are more mature [5-6]. Our study has the main contribution to find stock market liquidity impact in firm value. This study is the first attempt to investigate the impact of stock liquidity on firm value in the context of the Pakistani Automobile Assembler sector.

Hypothesis development

Based on the previous literature, the following hypothesis have been developed.

Ho: There is no positive relationship between stock liquidity and firm value of the automobile assembler industry of Pakistan

H1: There is a positive relationship between stock liquidity and firm value of the automobile assembler industry of Pakistan.

Data and Methodology

In this section, we discuss the sources and detail of data and methodologies, which we will use in our study.

Data

We have used annual data covering Automobile assembler sector 11 firms listed of Pakistan stock exchange (PSX) over the period 2004-2018. The fifteen-year panel data were taken from annual financial reports of the companies. For the purpose of this study, 11 Automobiles assembler companies have been taken which is the sample of the (PSX) listed Automobile assembler companies of Pakistan.

Variables

The variables used in this paper have been taken largely from the previous literature to draw a meaningful comparison with prior researches. The value of a firm is taken as the dependent variable and is measured by Tobin’s Q. Value is the firm value indicator. In line with previous work, we use Tobin’s Q as a proxy for firm value.

Indicator calculated by:

We first examine firm value using the common value measure of Tobin’s Q. Further, following [4-6], operation income to price ratio , financial leverage  and operating income to assets ratio . This method offers more awareness into the underlying mechanism for the link between firm value and stock liquidity.

Where:  is the ratio of operating income after depreciation divide market value of equity at the fiscal year-end,  is the ratio of market value of equity divide market value of assets at the fiscal year-end, is the ratio of operating income after depreciation divide book value of assets at the fiscal year-end.

 is the stock market liquidity indicator, which is calculated as the ratio of total trading volume in the year to the total share outstanding over the year [4] calculated by traded shares/ Total shares outstanding  is the firm size, which is calculated as the natural logarithm of the book value of total assets at the fiscal year-end. [4].

Methodology

Theoretically, explain POLS method also known as common constant method is appropriate for a sample which is homogenous, that’s why it uses common constant for cross sections included in the sample. Our data includes all the Automobile assembler sector of Pakistan. Therefore, POLS method is appropriate for our data set. The benefit of POLS is that more consistent estimate of the parameters in the model can be found. It is effective technique where the association among the variables is stable across cross-section units. We thought that the association among stock market liquidity and firm value stable across firms (Table 1). The following linear regression equation is used to determine the effect of Independent variables on the dependent variable Tobin’s (Q) on the left-hand side of the equation

TOBIN′S Qit Represents the Dependent Variable where i and t refer to the specific firm and specific fiscal year, respectively.

β0 Represents constant

β1OIPit Represents the ratio of operating income after depreciation to the market value of equity at the fiscal year-end

β2LEVit Ratio of the market value of equity to the market value of assets at the fiscal year-end

β3OIOAit Represents the ratio of operating income after depreciation to book value of assets at the fiscal year-end

β4 Is the stock market liquidity indicator, which is calculated as the ratio of total trading volume in the year to the total share outstanding over the year

β5SIZEit is the firm size, which is calculated as the natural logarithm of the book value of total assets at the fiscal year-end

εit= error term

i= Specific firm t= year

Specification of variables

Table 1: Description of variables used.

Specification

Variable

Measured By

References

Expected Sign

Dependent Variable

Tobin’s Q

Market value of asset / Book value of Asset

[14,26,1,5,2,6,27]

NA

Variable of interest

Liquidity

Traded Shares / Total shares outstanding

[21,33,4,1,5,2,6,25,27]

+

Control variables

Operating Income to price ratio (OIP)

Operating income after depreciation/ Market value of equity

[4-6]

 
 

Leverage

Market value of equity / Market value of assets

[14,26,4,1,5,2,6,25,28,27]

 
 

Operating Income to on Assets ratio (OIOA)

Operating income after depreciation/ book value of assets

[4-6]

+

 

Size

Natural logarithm of the book value of total assets

[14,4,1,5,2,6,25-28]

+

Table 2: Descriptive statistics.

 

TOBINSQ

OIP

LEV

OIOA

LIQ

SIZE

MEAN

2.701

0.373

0.603

0.061

0.637

17.737

Median

1.821

0.367

0.116

0.034

0.168

17.665

Maximum

13.904

2.376

6.487

1.126

15.73

20.708

Minimum

0.048

-0.694

-0.008

-1.283

0.005

13.728

Std. Dev

2.598

0.365

1.328

0.229

1.895

1.734

Table 3: Correlation Metrics.

 

TOBINSQ

OIP

LEV

OIOA

LIQ

SIZE

TOBINSQ

1.000

 

 

 

 

 

OIP

0.147

1.000

 

 

 

 

LEV

-0.291

-0.297

1.000

 

 

 

OIOA

0.109

0.312

-0.052

1.000

 

 

LIQ

0.283

-0.210

0.107

0.005

1.000

 

SIZE

-0.331

-0.027

0.070

-0.265

-0.073

1.000

Table 4: Regression results when Tobin’s Q use dependent variable.

VARIABLE

COFFICENT

Std. Error

T-statistics

Prob.

C

10.171

1.900

5.352

0.000

OIP

0.963

0.543

1.772

0.078

LEV

-0.520

0.139

-3.732

0.000

OIOA

-0.299

0.843

-0.355

0.723

LIQ

0.437

0.095

4.574

0.000

SIZE

-0.438

0.106

-4.138

0.000

R-Squared

0.281

Durbin-Watson stat

 

1.776

Adjusted R- squared

0.258

Prob(F- statistics)

0.000

 

F-Statistics

12.285

 

 

 

Empirical Results and Discussion

Table 2 presents the descriptive statistics of various variables employed in this analysis. The mean of Tobin’s Q is 2.701 whereas it ranged from 0.048 to 13.904. The mean operating income to price ratio is 0.373 whereas it ranged from -0.694 to 2.376. The mean of financial leverage is 0.603 whereas it ranged from -0.008 to 6.487. The mean operating income to asset ratio is 0.061; whereas it ranged from -1.283 to 1.126. The mean of liquidity is 0.637; whereas it ranged from 0.005 to 15.73. The mean size is 17.737; whereas it ranged from 13.728 to 20.708.

Note: TOBINQ is Tobin’s Q value; OIP is the ratio of operating income to price; LEV is financial leverage; OIOA is the ratio of operating income on assets; LIQ is the liquidity measured by turnover rate, SIZE is the firm size, measured by the natural logarithm of book value of total assets Note: TOBINQ is Tobin’s Q value; OIP is the ratio of operating income to price; LEV is the leverage, measured by the ratio of market value of equity to the market value of assets; OIOA is the ratio of operating income on assets; LIQ is the liquidity measured by the turnover rate, SIZE is the firm size, measured by the natural logarithm of book value of total assets. In Table 3 correlation among the dependent and independent variables is given which shows the lower correlation values among the variables. OIP and Tobin’s Q positive correlation shows an average positive relationship. The result showed that there exists a negative relationship between Leverage (LEV) and TOBIN’S Q value. OIOA also shows a positive relationship with Tobin’s Q. The strength of the relationship between them is about 10.9% that shows a positive relationship between (OIOA) and Firm Value. The correlation result of SIZE shows a negative relation with the firm value indicator Tobin’s Q. Therefore, it is mean vice versa relation between size and firm value. Note: TOBINQ is Tobin’s Q value; OIP is the ratio of operating income to price; LEV is the leverage, measured by the ratio of market value of equity to the market value of assets; OIOA is the ratio of operating income on assets; LIQ is the liquidity measured by the turnover rate, SIZE is the firm size, measured by the natural logarithm of book value of total assets. Results of the POLS regression model in Table 4 produced. Adjusted R-square is 25.8%, which means that 25.8% variations in the dependent variables are explained by the independent variables present in our model. Probability F-statistic is highly significant which shows that our model is valid, relevant, and fit for the given study. Operating income to price ratio show the positive and significant relationship at the 10% level of significance with the firm value. It’s mean when operating income to price ratio increase firm value also increase because company generate more sales and manage accurately expenses. Operating income ratio key indicator for investor and creditors to see how business supporting their operations. Therefore, if firm’s make enough money from their operations and manage accurately expenses the firm has considered more stable. Financial leverage measured as the ratio of the market value of equity/market value of asset shows a negative and highly significant relationship with the firm value at level of 1% of the Pakistani automobile assembler sector. Further also find negative effect between leverage and firm value. A large amount of debt high leverage ratio has a negative effect on firms that makes a low profit, thus the investors may receive little or no earnings. Investors’ belief in equally the companies and the capital market is stunned later, the market value of firms’ shares will decrease the same while its firm value. Operating income to asset ratio is show the negative and insignificant relation with the firm value because probability greater than 10%. It’s mean no impact in our study on Automobile assembler sector of Pakistan. Stock Liquidity show the positive and highly significant relationship with the firm value at level of 1% because probability less than 5%. Remaining two independent variables show a negative relationship with firm value in the automobile assembler sector of Pakistan. If we see in detail the POLS result according to our prospect the coefficient of liquidity shows a positive relationship with the firm value of the Pakistani automobile assembler sector as measured by Tobin’s Q according to our hypothesis. Therefore, we accept the hypothesis H1 and reject the null hypothesis Ho. it means that if the stock liquidity increases the firm value of the automobile assembler will also be increase. This result is also supported by [5] also show liquidity positively impact in firm value further [6]find If liquid stocks traded at higher prices, which lead to higher market value for the firms. If firm’s stocks are liquid in nature, these can be sold in market at any time without any delay and firm can generate enough capital to fulfil its financial needs. Investors trading the shares more aggressively when stocks are more liquid, which they affect, improved firms’ value and relax the financial constraints. When increase stock market liquidity shares turnover also increases the firm value. The benefit of liquidity is that it allows the rapid exit from a stock when share prices fall. For traders who use a stop-loss a point at which you sell, to minimize losses this advantage is clearly very relevant. High liquidity means that there are a large number of orders to buy and sell in the underlying market. This increases the probability that the highest price any buyer is prepared to pay and the lowest price any seller is happy to accept will move closer together. Firm size is an important determinant of the firm's value. The regression results show negative relation between size and firm value in the Pakistani automobile assembler sector further (Du, 2016) also find a negative effect between size and firm value [27]. Further, find the size significant and negative impact on the market value in the firms of Pakistan [28]. Therefore, it has a negative impact on the value of the firms in Pakistan, because there are a high monitoring cost and low level of communication [29-33].

Conclusion

In this paper, we examine the impact of stock liquidity on the firm value in the Automobile assembler sector. We have applied pooled ordinary least square methodology for 11 non-financial listed companies’ automobile assembler sector from Pakistan over the period 2004-2018. This study has bridged the gap in the literature regarding the effects of stock liquidity in firm value by taking data of the Pakistan automobile assembler sector as a sample. Many theoretical models predict a positive relation between stock liquidity and firm performance from developed countries. However, no comprehensive empirical studies have been done to investigate this topic from Pakistan. We find the stock liquidity has a positive impact on firm value. We reject the null hypothesis Ho and accept the alternative H1 because our regression results show highly significant relationship between stock liquidity and firm value. If firm’s stocks are liquid in nature, these can be sold in market at any time without any delay and firm can generate enough capital to fulfil its financial needs. Investors trade the shares more aggressively when stocks are liquid, which results in, improved firms’ value and relax the financial constraints. The benefit of liquidity is that it allows the rapid exit from a stock when share prices fall. For traders who use a stop-loss a point at which you sell, to minimize losses this advantage is clearly very relevant. High liquidity means that there are a large number of orders to buy and sell in the underlying market. This increases the probability that the highest price any buyer is prepared to pay and the lowest price any seller is happy to accept will move closer together. Secondly, our results firm size has shown a negative impact on firm value because there are a high monitoring cost and low level of communication, also show a negative relation between size and firm value. Thirdly, we find that results leverage has shown a negative impact on firm value, also find a negative relation between leverage and firm value. A large amount of debt high leverage ratio has a negative effect on firms that makes a low profit, thus the investors may receive little or no earnings. Investors’ belief in equally the companies and the capital market is stunned later, the market value of firms’ shares will decrease the same while its firm value.

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