Purpose: This article examines whether the way institutional ownership is distributed matters for liquidity risk in small-cap equities. It focuses on a practical distinction that is often blurred in research and portfolio monitoring: a stock may have substantial institutional participation while still depending on only one or two large holders for most of that participation.
Design/methodology/approach: The study combines an integrative review of research on institutional herding, fund flows, investment horizons, common ownership and funding shocks with an embedded re-analysis of a Chinese A-share panel. The panel contains 1,434 fund-held small-cap stocks and 313,145 stock-day observations from August 2023 to June 2024. A two-way fixed-effects model tests whether pre-stress fund-holding concentration predicts low-turnover limit-down closes during the 2024 small-cap sell-off.
Findings: Higher pre-stress concentration is associated with a greater probability of a low-turnover limit-down close. A one-standard-deviation increase in the fund-holding Herfindahl index corresponds to a 0.076 percentage-point rise in the daily probability of that outcome. Total fund ownership and the number of fund holders do not show the same positive relationship. The evidence is consistent with a dominant-holder channel, although the data do not identify redemptions, coordinated selling or unexecuted orders directly.
Practical implications: Risk monitoring should compare ownership concentration with feasible exit capacity. Asset managers, listed firms and regulators can obtain a more useful stress signal by combining concentration measures with turnover, market depth, recent fund flows and the constraints imposed by price-limit rules.
Originality/value: The article recasts liquidity fragility as an organizational exposure. The relevant issue is not simply how much institutions own, but how decision authority and potential selling pressure are concentrated across asset-management organizations.