Firm Level Governance and Institutional Determinants of Liquidity: Evidence from Sub Saharan Africa

48 Pages Posted: 19 Mar 2013

See all articles by Bruce Allen Hearn

Bruce Allen Hearn

University of Southampton

Jenifer Piesse

University of Stellbosch; King's College London - Department of Management

Date Written: March 18, 2013


This study contrasts well established liquidity measures, namely volume-based turnover ratio, related price-impact Amihud (2002) construct and the multidimensional Liu (2006) indicator alongside the Lesmond, Ogden and Trzcinka (1999) proportion of zero daily returns metric in explaining bid-ask spread plus commissions costs. We control for six critical firm governance characteristics that impact liquidity alongside the market-based controls that are conventionally solely included in the literature. Using a unique sample of 12 Sub Saharan African (SSA) equity markets, namely Kenya, Mauritius, Zambia, Zimbabwe, Botswana, Malawi, Namibia, Nigeria, Ghana, BRVM (Cote d’Ivoire), and then South Africa’s ALT-x and Main boards we find evidence that state and foreign venture capitalist involvement in firms enhances liquidity while involvement of foreign partners, entrepreneurial founders, domestic venture capital and inclusion within an extended business or family network has opposite effect. The evidence supports the use of the proportion of daily zero returns measure in preference to other measures in capturing illiquidity. Furthermore we find that liquidity is closely associated with three of six World Bank Governance measures of institutional quality with these being government effectiveness, regulatory quality and rule of law.

Keywords: Liquidity, Liquidity Determinants, Emerging Financial Markets, Africa

JEL Classification: G15, N20

Suggested Citation

Hearn, Bruce Allen and Piesse, Jenifer, Firm Level Governance and Institutional Determinants of Liquidity: Evidence from Sub Saharan Africa (March 18, 2013). International Review of Financial Analysis, 2013, Available at SSRN:

Bruce Allen Hearn (Contact Author)

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

Jenifer Piesse

University of Stellbosch

Stellenbosch, Western Cape
South Africa

King's College London - Department of Management ( email )

Virginia Woolf Building
22 Kingsway
London, England WC2B 6NR
United Kingdom

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