Market Liquidity and Ambiguity: The Certification Role of Corporate Governance

26 Pages Posted: 20 Oct 2014

See all articles by Christine X. Jiang

Christine X. Jiang

University of Memphis

Jang‐Chul Kim

Northern Kentucky University

Emre Kuvvet

Nova Southeastern University

Date Written: November 2014

Abstract

We investigate how firm‐specific certification practices through corporate governance can reduce perceived ambiguity and thus enhance liquidity of a firm in the stock market. We show that better corporate governance helps reduce ambiguity. In addition, a reduction in ambiguity is significantly related to higher liquidity of firms. Our results are robust to alternative model specifications and measures of ambiguity, and remain statistically significant after controlling for other known determinants of ambiguity and liquidity. Our results shed light on how ambiguity can be moderated through firm‐level certification practices and on the channel through which a moderation of ambiguity affects shareholder wealth.

Keywords: ambiguity, uncertainty, corporate governance, spreads, liquidity

JEL Classification: G10, G34

Suggested Citation

X. Jiang, Christine and Kim, Jang‐Chul and Kuvvet, Emre, Market Liquidity and Ambiguity: The Certification Role of Corporate Governance (November 2014). Financial Review, Vol. 49, Issue 4, pp. 643-668, 2014, Available at SSRN: https://ssrn.com/abstract=2511984 or http://dx.doi.org/10.1111/fire.12051

Christine X. Jiang (Contact Author)

University of Memphis

Memphis, TN 38152
Memphis, TN usa 38152-3370
United States

Jang‐Chul Kim

Northern Kentucky University

Nunn Drive
Highland Heights, KY 41099
United States

Emre Kuvvet

Nova Southeastern University ( email )

Ft. Lauderdale, FL 33314
United States

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