Impacts of Corporate Governance on Stock Liquidity: A Panel Quantile Regression
Keywords:
Corporate Governance, Liquidity, Panel Data, Quintile RegressionAbstract
Dissimilar to previous studies, the present article considers the positively skewed distribution of the Amihud’s (2002) stock illiquidity measured by employing random-effects Tobit and fixed-effect quantile regression models. We find a significant impact of the Thai Institute of Directors’ corporate governance index (i.e., no star, 3-star, 4-star, and 5-star) on the stock liquidity in the Stock Exchange of Thailand. In general, good corporate governance improves firm transparency, thereby inducing increased trade. Robustness tests using a nonparametric measure of rank correlation and a random-effects ordered Probit model confirm our findings.
References
Ajinkya, B., Bhojraj, S., & Sengupta, P. (2005). The association between outside directors, institutional investors and the properties of management earnings forecasts. Journal of Accounting Research, 43(3), 343–376.
Ali, S., Liu, B., & Su, J. J. (2017). Corporate governance and stock liquidity dimensions: Panel evidence from pure order-driven Australian market. International Review of Economics and Finance, 50(March), 275–304.
Amihud, Y. (2002). Illiquidity and stock returns: cross-section and time-series effects. Journal of Financial Markets, 5(1), 31–56.
Bacidore, J. M., & Sofianos, G. (2002). Liquidity provision and specialist trading in NYSE-listed non-U.S. stocks. Journal of Financial Economics, 63(1), 133–158.
Bamber, L. S., & Cheon, Y. S. (1998). Discretionary management earnings forecast disclosures: Antecedents and outcomes associated with forecast venue and forecast specificity choices. Journal of Accounting Research, 36(2), 167–190.
Brockman, P., & Chung, D. Y. (2003). Investor protection and firm liquidity. The Journal of Finance, 58(2), 921–937.
Cai, J., Liu, Y., Qian, Y., & Yu, M. (2015). Information asymmetry and corporate governance. Quarterly Journal of Finance, 05(3), 1-32.
Chung, H. (2006). Investor protection and the liquidity of cross-listed securities: Evidence from the ADR market. Journal of Banking & Finance, 30(5), 1485–1505.
Chung, K. H., Elder, J., & Kim, J. C. (2010). Corporate governance and liquidity. Journal of Financial and Quantitative Analysis, 45(2), 265–291.
Chung, K. H., Kim, J. S., Park, K., & Sung, T. (2012). Corporate governance, legal system, and stock market liquidity: Evidence around the world. Asia-Pacific Journal of Financial Studies, 41(6), 686–703.
Coller, M., & Yohn, T. L. (1997). Management forecasts and information asymmetry: An examination of bid-ask spreads. Journal of Accounting Research, 35(2), 181-191.
Copeland, T. E., & Galai, D. (1983). Information effects on the bid-ask spread. The Journal of Finance, 38(5), 1457–1469.
Cormier, D., Ledoux, M., Magnan, M., & Aerts, W. (2010). Corporate governance and information asymmetry between managers and investors. Corporate Governance: The International Journal of Business in Society, 10(5), 574–589.
Cueto, D. C., & Switzer, L. N. (2013). Intraday market liquidity, corporate governance, and ownership structure in markets with weak shareholder protection: evidence from Brazil and Chile. Journal of Management & Governance, 19(2), 395–419.
Diamond, D. W. (1985). Optimal release of information by firms. The Journal of Finance, 40(4), 1071–1094.
Diamond, D. W., & Verrecchia, R. E. (1991). Disclosure, liquidity, and the cost of capital. The Journal of Finance, 46(4), 1325–1359.
Edmans, A., Fang, V. W., & Zur, E. (2013). The effect of liquidity on governance. Review of Financial Studies, 26(6), 1443–1482.
Elbadry, A., Gounopoulos, D., & Skinner, F. (2015). Governance quality and information asymmetry. Financial Markets, Institutions & Instruments, 24(2–3), 127–157.
Eng, L. L., & Mak, Y. T. (2003). Corporate governance and voluntary disclosure. Journal of Accounting and Public Policy, 22(4), 325–345.
Foo, Y. B., & Zain, M. M. (2010). Board independence, board diligence and liquidity in Malaysia: A research note. Journal of Contemporary Accounting and Economics, 6(2), 92–100.
Glosten, L. R., & Milgrom, P. R. (1985). Bid, ask and transaction prices in a specialist market with heterogeneously informed traders. Journal of Financial Economics, 14(1), 71–100.
Healy, P. M., Hutton, A. P., & Palepu, K. G. (1999). Stock performance and intermediation changes surrounding sustained increases in disclosure. Contemporary Accounting Research, 16(3), 485–520.
Jackson, M. K. (2013). Ownership, corporate governance and liquidity in Caribbean firms. Master's thesis, The school of economics and finance, faculty of business, Queensland university of technology, Brisbane, Australia. Retrieved from https://eprints.qut.edu.au/63853/4/63853.pdf.
Kanagaretnam, K., Lobo, G. J., & Whalen, D. J. (2007). Does good corporate governance reduce information asymmetry around quarterly earnings announcements? Journal of Accounting and Public Policy, 26(4), 497–522.
Karamanou, I., & Vafeas, N. (2005). The association between corporate boards, audit committees, and management earnings forecasts: An empirical analysis. Journal of Accounting Research, 43(3), 453–486.
Karmani, M., & Ajina, A. (2012). Market stock liquidity and corporate governance. SSRN Electronic Journal. In 29th International Conference of the French Finance Association (AFFI). Retrieved from https://ssrn.com/abstract=2084707.
Kavajecz, K. A. (1999). A Specialist’ s Quoted Depth and the limit order book. The Journal of Finance, 54(2), 747–771.
Kim, O., & Verrecchia, R. E. (1994). Market liquidity and volume around earnings announcements. Journal of Accounting and Economics, 17(1-2), 41–67.
Lee, C., M. C., Mucklow, B., & Ready, M. J. (1993). Spreads, depths, and the impact of earnings information: An intraday analysis. The Review of Financial Studies, 6(2), 345–374.
Lei, Q., Lin, B., & Wei, M. (2013). Types of agency cost, corporate governance and liquidity. Journal of Accounting and Public Policy, 32(3), 147–172.
Leuz, C., & Verrecchia, R. E. (2000). The economic consequences of increased disclosure. Journal of Accounting Research, 38(May), 91–124.
Li, W.-X., Chen, C. C.-S., & French, J. J. (2012). The relationship between liquidity, corporate governance, and firm valuation: Evidence from Russia. Emerging Markets Review, 13(4), 465–477.
Powell, D., & Wagner, J. (2014). The exporter productivity premium along the productivity distribution: evidence from quantile regression with nonadditive firm fixed effects. Review of World Economics, 150(4), 763-785.
Powell, D. (2016). Quantile treatment effects in the presence of covariates. Review of Economics and Statistics (2016), 1-12.
Prommin, P., Jumreornvong, S., & Jiraporn, P. (2014). The effect of corporate governance on stock liquidity: The case of Thailand. International Review of Economics & Finance, 32(C), 132–142.
Prommin, P., Jumreornvong, S., Jiraporn, P., & Tong, S. (2016). Liquidity, ownership concentration, corporate governance, and firm value: Evidence from Thailand. Global Finance Journal, 31(C),, 73–87.
Tang, K., & Wang, C. (2011). Corporate governance and firm liquidity: Evidence from the Chinese stock market. Emerging Markets Finance & Trade, 47(February), 47–60.
Verrecchia, R. E. (1983). Discretionary disclosure. Journal of Accounting and Economics, 5(1), 179–194.
Verrecchia, R. E. (2001). Essays on disclosure. Journal of Accounting and Economics, 32(1–3), 97–180.
Welker, M. (1995). Disclosure policy, information asymmetry, and liquidity in equity markets. Contemporary Accounting Research, 11(2), 801–827.
