Thesis

I have completed my PhD under the supervision of Prof. Byomakesh Debata in 2025.

PhD Thesis "Role of Firm’s Perception of Policy Uncertainty, Corporate Policy Risk and Manager Sentiment on Stock Liquidity: Empirical Evidence from India"

Abstract

Stock market liquidity is a vital component of financial market development, influencing transaction costs, investment decisions, market efficiency, and capital allocation. This thesis examines the firm-specific determinants of stock liquidity in India, focusing on three key objectives: (i) analyzing the impact of firm-perceived policy uncertainty (FPU) on stock liquidity, (ii) assessing the role of overall corporate policy risk (PRI) in stock liquidity variations, and (iii) investigating the influence of managerial sentiment on stock liquidity.  

First, the study explores how FPU affects stock liquidity, leveraging market microstructure and behavioral finance theories. Using textual analysis of MD&A reports from 466 listed firms (2003–2023), the findings reveal a significant negative association between FPU and stock liquidity, particularly in firms with opaque information environments and during financial crises. Robustness checks using propensity score matching (PSM), two-stage least squares (2SLS IV), and system generalized method of moments (System GMM) confirm these results.  

Second, the study examines the influence of corporate policy risk (PRI) on stock liquidity. A novel PRI index is developed by quantifying risks embedded in managers various policy decisions such as: investment, financing, diversification, and cash management decisions. The findings suggest that PRI negatively impacts stock liquidity, especially in firms with lower transparency and during financial crises. These results remain robust after controlling for endogeneity concerns.  

Third, the study investigates the role of managerial sentiment in shaping stock liquidity. Utilizing a FinBERT-based large language model approach, a sentiment index from MD&A reports is constructed. The findings indicate that positive managerial sentiment enhances stock liquidity, particularly during the firm’s growth and maturity phases, while its impact diminishes during financial crises.  

This research provides valuable insights into firm-specific liquidity determinants in an emerging market, offering practical implications for investors, managers, and policymakers to enhance market transparency, risk assessment, and policy stability.  

Keywords:Stock liquidity, Policy uncertainty, Corporate policy risk, Managerial sentiment, FinBERT, NLP, Information asymmetry, Corporate life cycle, Financial crisis, System GMM, 2SLS IV, PSM.