Abstract
This paper discusses the relationship between stock market liquidity and corporate governance. Both concepts are widely investigated from different angles in the literature. It is generally agreed that they are related so that better corporate governance implies higher liquidity for shares of listed companies. However, the importance of good corporate governance for the market liquidity of the share will differ depending on the characteristics of the firm’s business. Good corporate governance will be particularly important in reducing agency problems in firms subject to a high degree of uncertainty. Proper corporate governance, in other words, matters most in cases where external assessment of the firm’s business prospects is difficult, while it is less important for value creation in firms where the business is easier to understand.
Highlights
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In empirical studies of the market liquidity of an asset, it is important to keep in mind that all actual measures of the degree of information asymmetry for a given company’s shares at a given point in time are likely to contain considerable measurement problems
On a large sample of Australian firms in 2001–2013, Ali et al (2017) found a significantly positive relationship between corporate governance quality of firms and their stock liquidity. They found that corporate governance quality improves liquidity since it is associated with higher information disclosure
Summary
Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel. Suggested Citation: Berglund, Tom (2020) : Liquidity and corporate governance, Journal of Risk and Financial Management, ISSN 1911-8074, MDPI, Basel, Vol 13, Iss. 3, pp. Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen. Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence
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