Articlegreen2010

Corporate Governance and Liquidity

567 citations0/0 files storedJournal of Financial and Quantitative Analysis

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Financial Markets and Investment Strategies Corporate Finance and Governance Financial Analysis and Corporate Governance

Abstract

Abstract We investigate the empirical relation between corporate governance and stock market liquidity. We find that firms with better corporate governance have narrower spreads, higher market quality index, smaller price impact of trades, and lower probability of information-based trading. In addition, we show that changes in our liquidity measures are significantly related to changes in the governance index over time. These results suggest that firms may alleviate information-based trading and improve stock market liquidity by adopting corporate governance standards that mitigate informational asymmetries. Our results are remarkably robust to alternative model specifications, across exchanges, and to different measures of liquidity.

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References

1997A Survey of Corporate Governance 1985Continuous Auctions and Insider Trading 2000Investor protection and corporate governance 1985Bid, ask and transaction prices in a specialist market with heterogeneously informed traders 2003Corporate Governance and Equity Prices 2003Earnings management and investor protection: an international comparison 2003Liquidity Risk and Expected Stock Returns 1986Asset pricing and the bid-ask spread

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