Competitive strategy and stock market liquidity: a natural language processing approach

Xintong Wang1, Ruoqi Han1, Min Zheng1
1Fudan University, Shanghai, China

Tóm tắt

In this study, we examine how competitive strategy affects firm-level stock liquidity. Following Porter’s (1980) classification of generic strategies, we categorize firms into differentiators and cost leaders, where differentiators aim to differentiate themselves by delivering unique products and services while cost leaders attempt to achieve a low-cost position through efficient cost control. We hypothesize that firms emphasizing differentiation strategies show higher stock liquidity than those adopting cost leadership strategies because differentiators attract more investor attention and trading activities due to their larger growth potential. Employing a competitive strategy measure developed by a machine-learning-based natural language processing approach of Seed-Words plus Word2Vec Similarity Word Extension, we find results supporting our hypothesis among China’s A-share listed firms. Additional analyses suggest that differentiators may improve stock liquidity by enhancing earnings quality, increasing asset liquidity, and reducing information asymmetry. Overall, our study highlights the importance of strategic positioning in improving the stock market performance.

Tài liệu tham khảo

Abernethy MA, Kuang YF, Qin B (2019) The relation between strategy, CEO selection, and firm performance. Contemp Account Res 36(3):1575–1606 Abrahamson E, Hambrick DC (1997) Attentional homogeneity in industries: The effect of discretion. J Organ Behav Int J Ind Occup Organ Psychol Behav 18(S1):513–532 Amihud Y (2002) Illiquidity and stock returns: cross-section and time-series effects. J Financ Markets 5(1):31–56 Amihud Y, Mendelson H (1986) Liquidity and stock returns. Financ Anal J 42(3):43–48 Balakrishnan K, Billings MB, Kelly B, Ljungqvist A (2014) Shaping liquidity: on the causal effects of voluntary disclosure. J Financ 69(5):2237–2278 Banker RD (2020) Integrating enterprise competition strategy to conduct high quality management accounting research. Manag Account Stud 3(05):1 Banker RD, Mashruwala R, Tripathy A (2014) Does a differentiation strategy lead to more sustainable financial performance than a cost leadership strategy? Manag Decis 52(5):872–896 Bentley KA, Omer TC, Sharp NY (2013) Business strategy, financial reporting irregularities, and audit effort. Contemp Account Res 30(2):780–817 Beyer A, Cohen DA, Lys TZ, Walther BR (2010) The financial reporting environment: review of the recent literature. J Account Econ 50(2–3):296–343 Blythe J (2009) Key concepts in marketing. Sage, Los Angeles Chandler AD Jr (1962) Strategy and structure: chapters in the history of the American industrial enterprise. MIT press, Cambridge Chen C (2018) Market uncertainty and stock liquidity: based on commonality and microstructure. China Econ Stud 06:99–111 ((In Chinese)) Chen H, Gu N (2017) The mechanism of market making in the new third board, stock liquidity, and securities values. J Financ Res 04:176–190 ((In Chinese)) Dang TL, Nguyen TH, Tran NTA, Vo TTA (2018) Institutional ownership and stock liquidity: International evidence. Asia Pac J Financ Stud 47(1):21–53 Deng B, Li Z, Liang Q (2016) Foreign ownership and stock liquidity. J Financ Res 11:142–157 ((In Chinese)) Dess GG, Davis PS (1984) Porter’s (1980) generic strategies as determinants of strategic group membership and organizational performance. Acad Manag J 27(3):467–488 Dong X, Liu X (2020) Does economic policy uncertainty affect stock liquidity? —Based on the evidence from chinese listed companies. J Bus Econ 08:57–69 ((In Chinese)) Feltham GA, Ohlson JA (1995) Valuation and clean surplus accounting for operating and financial activities. Contemp Account Res 11(2):689–731 Hambrick DC (1983) High profit strategies in mature capital goods industries: a contingency approach. Acad Manag J 26(4):687–707 Hambrick DC, MacMillan IC (1984) Asset parsimony—managing assets to manage profits. Sloan Manag Rev (Pre 1986) 25(2):67 Han L, Cheng X, Li H (2019) The impact of the opening of high-speed railway on stock liquidity. Financ Forum 24(12):68–78 ((In Chinese)) He Y, Zhang T (2006) Information disclosure, information asymmetry, and the cost of capital: a review of research. Account Res 06:80–86 ((In Chinese)) Hong F, Jiang Y (2020) The NEEQ tiered system, venture capital and stock liquidity: empirical evidence from PSM-DID method. Zhejiang Social Sciences, 12, (In Chinese) Hu N, Qiu F, Liang P (2020) Competitive Strategy and Earnings Quality: An Empirical Study Based on Text Analysis. Contemp Financ Econ 09:138–148 ((In Chinese)) Huff AS (1990) Mapping strategic thought. Wiley Ittner CD, Larcker DF, Rajan MV (1997) The choice of performance measures in annual bonus contracts. Account Rev 72:231–255 Kaplan RS, Norton DP (2000) Having trouble with your strategy? Then map it. Focus Your Organ Strategy Balanced Scorecard 49(5):167–176 Kaplan S (2008) Cognition, capabilities, and incentives: assessing firm response to the fiber-optic revolution. Acad Manag J 51(4):672–695 Ke Y, Wu X, Li Y (2020) Research on controlling shareholder’s equity pledge, shareholding structure and stock liquidity. Stud Int Financ 07:87–96 ((In Chinese)) Kim C, Bettis RA (2014) Cash is surprisingly valuable as a strategic asset. Strateg Manag J 35(13):2053–2063 Kotha S, Orne D (1989) Generic manufacturing strategies: a conceptual synthesis. Strateg Manag J 10(3):211–231 Levine R, Zervos S (1998) Stock markets, banks, and economic growth. Am Econ Rev 88:537–558 Li C, Liu Y, Li M (2016) Capital structure, ownership nature of ultimate controller and stock liquidity. Bus Manag J 38(05):153–164 ((In Chinese)) Li S, Jin D, Li Y (2018) Does online social media increase the liquidity of stock markets?——A study from the perspective of investor interaction. Finance Forum 23(07):35–49 ((In Chinese)) Liu N, Xu W (2017) Stock liquidity on China NEEQ exchange. Eurasian Econ Rev 7(2):255–275 Liu S (2015) Investor sentiment and stock market liquidity. J Behav Financ 16(1):51–67 Liu X, Zhang X, Gu X, Yao D (2016) How does Investor behavior affect stock market liquidity? Analysis of investor sentiment, information cognition and short-sale constraints. J Manag Sci China 19(10):87–100 ((In Chinese)) Loughran T, McDonald B (2011) When is a liability not a liability? Textual analysis, dictionaries, and 10-Ks. J Financ 66(1):35–65 Luo D, Wang B (2017) Marker-maker system and stock liquidity in the nation equities exchange and quotations. Q J Financ 11(04):1–19 ((In Chinese)) Ma C (2015) Institutional shareholders’ independency and stock liquidity——empirical study based on the a-share listed firms of shenzhen main board market. Financ Econ Res 30(04):65–74 ((In Chinese)) Mikolov T, Sutskever I, Chen K, Corrado GS, Dean J (2013) Distributed representations of words and phrases and their compositionality. In: Advances in Neural Information Processing Systems, 26 Miller A, Dess GG (1993) Assessing Porter’s (1980) model in terms of its generalizability, accuracy and simplicity. J Manage Stud 30(4):553–585 O’brien JP (2003) The capital structure implications of pursuing a strategy of innovation. Strateg Manag J 24(5):415–431 Pakes A (1985) On patents, R & D, and the stock market rate of return. J Polit Econ 93(2):390–409 Porter ME (1980) Competitive strategy. Free Press, New York Porter ME (1985) Competitive advantage: creating and sustaining superior performance. Free Press, New York, NY Porter ME (1991) Towards a dynamic theory of strategy. Strateg Manag J 12(S2):95–117 Porter ME (1996) What is strategy? Harv Bus Rev 74:61–78 Segal G, Shaliastovich I, Yaron A (2015) Good and bad uncertainty: macroeconomic and financial market implications. J Financ Econ 117(2):369–397 Sensoy A, Tabak BM (2016) Dynamic efficiency of stock markets and exchange rates. Int Rev Financ Anal 47:353–371 Sloan RG (1996) Do stock prices fully reflect information in accruals and cash flows about future earnings? Account Rev 71:289–315 Teece DJ (2010) Business models, business strategy and innovation. Long Range Plan 43(2–3):172–194 Thornhill S, White RE (2007) Strategic purity: a multi-industry evaluation of pure vs hybrid bus strategies. Strateg Manag J 28(5):553–561 Tong Y, Wei Y (2021) Study on the relationship among financial performance, business diversification and individual stock liquidity of companies listed on the growth enterprise market. Manage Rev 33(04):283–294 Treacy M, Wiersema F (1993) Customer intimacy and other value disciplines. Harv Bus Rev 71(1):84–93 Wang B, Pan Y (2017) Influence of new media disclosure on market liquidity——evidence from firms’ use of we chat. East China Econ Manag 10:143–150 ((In Chinese)) Wang K, Wang H, Li D, Dai X (2018) Complexity of annual report and management self-interest: empirical evidence from chinese listed firms. Manag World 34(12):120–132 ((In Chinese)) Wang X, Yu J (2016) Targeted issuance, surplus management and stock liquidity. Res Financ Econ Issues 01:64–71 ((In Chinese)) Weber RP (1990) Basic content analysis. Sage Wu F, Hu H, Lin H, Ren X (2021) Enterprise digital transformation and capital market performance: empirical evidence from stock liquidity. Manag World 37(07):130–144 ((In Chinese)) Wu X, Tian G, Si Y, Yu Z (2017) Internet media management and stock liquidity. J Manag Sci 30(6):51–64 ((In Chinese)) Yan W, Wang X, Wen J (2019) Has the tiered system enhanced the liquidity of the neeq? empirical evidence from the multivariate regression discontinuity design. J Financ Res 05:170–189 ((In Chinese)) Yang G, Gao F, Bai X (2019) Firm characteristics, stock liquidity and firm value—a structural equation study based on NSS data. Stud Explor 04:93–101 ((In Chinese)) Yin H (2017) A study of the effect and mechanism of investor sentiment to stock liquidity. J Xiamen Univ 04:102–113 ((In Chinese)) Yin H, Hua Y (2018) Research on influence of investor’s sentiment on stock liquidity based on experimental economics. J Central Univ Financ Econ 11:38–49 ((In Chinese)) Zahra SA, Covin JG (1993) Business strategy, technology policy and firm performance. Strateg Manag J 14(6):451–478 Zhang Z, Li Y, Zhang Y, Liu X (2014) A test on indirect liquidity measures in China stock market: an empirical analysis of the direct and indirect measures of bid-ask spread. China Econ Quart 13(1):233–262 ((In Chinese)) Zhao C, Liu C, Zou T (2020) How does the tiered system improve stock liquidity of the NEEQ. China Econ Stud 03:59–72 ((In Chinese)) Zott C, Amit R (2008) The fit between product market strategy and business model: Implications for firm performance. Strateg Manag J 29(1):1–26