Ownership concentration, insiders and illiquidity

Draft: not to be quoted This paper examines the relationship between stock ownership concentration and illiquidity, using comprehensive shareholding data from companies listed on the Australian Stock Exchange. Consistent with prior research, ownership concentration is positively related to illiquidity. Analysis of individual shareholder types provides additional insights into this relationship. Director holdings are examined. Director holdings are largest in small, highly concentrated stocks and are positively related to illiquidity. Measures to reduce ownership concentration, such as increasing shareholder numbers and increasing retail shareholder participation, especially in small stocks, may enhance liquidity and price discovery. JEL Classification: G3