Board Independence, Stock Liquidity, and Price Efficiency

24 Pages Posted: 5 Sep 2011 Last revised: 2 Feb 2015

See all articles by Angelo Aspris

Angelo Aspris

University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Alex Frino

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Date Written: December 10, 2014

Abstract

Many recent governance reforms require that a majority of directors on corporate boards should be independent, and that only independent directors should serve on firm sub-committees. We examine the efficacy of these reforms by examining how board independence affects market liquidity and price efficiency. We focus on a comprehensive sample of 239 listed firms from 2004 to 2009 and find that firms with greater board independence have narrower spreads and greater speed of adjustment to new information. Additionally, improvements in board independence over time are positively associated with improvements in firm liquidity and efficiency. The results suggest that greater board independence can lower the probability of informed trading resulting in greater liquidity provision and smaller price delay.

Keywords: Corporate governance, board independence, directors, liquidity, market efficiency

JEL Classification: G14, G39

Suggested Citation

Aspris, Angelo and Frino, Alex, Board Independence, Stock Liquidity, and Price Efficiency (December 10, 2014). 2015 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=1922608 or http://dx.doi.org/10.2139/ssrn.1922608

Angelo Aspris (Contact Author)

University of Sydney - Discipline of Finance ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Alex Frino

The University of Sydney - Discipline of Finance ( email )

Futures Research Centre
P.O. Box H58
Sydney NSW
Australia
+61 2 9299 1809 (Phone)
+61 2 9299 1830 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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