Executives' Horizon, Internal Governance and Stock Market Liquidity
Central Michigan University
Christine X. Jiang
University of Memphis - Fogelman College of Business and Economics
Mohamed A. Mekhaimer
December 1, 2015
In this paper, we examine whether internal governance, the process through which subordinate managers effectively monitor the CEO, can improve a firm’s liquidity. Using the difference in horizons between a CEO and his immediate subordinates to measure internal governance, we show that firms with better internal governance have lower information asymmetry and higher liquidity. Further, we show that internal governance is effective in enhancing liquidity for firms with CEOs close to retirement, firms that require higher firm-specific skills, and firms with experienced subordinate managers. Our results are robust to inclusion of conventional governance measures, alternative model specifications, and different measures of internal governance and liquidity.
Number of Pages in PDF File: 47
Keywords: Executives’ horizon, internal governance, corporate governance, Subordinate managers, Liquidity.
JEL Classification: G30, G34, G39
Date posted: September 19, 2011 ; Last revised: April 9, 2016
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