Corporate Governance and Stock Market Liquidity

32 Pages Posted: 9 Dec 2019

See all articles by Erick Rading Outa

Erick Rading Outa

Charles Darwin University

Nelson Waweru

York University - School of Administrative Studies

Peterson K Ozili


Date Written: November 22, 2019


The purpose of this paper is to examine the capital market effects of corporate governance (CG) practices of “comply or explain” on stock market liquidity in a frontier market.

Using secondary data from Nairobi Securities Exchange (NSE) liquidity position is analyzed using panel data random effects regression against CG guidelines.

The results show a negative and significant relationship between CG compliance and stock market liquidity suggesting that regulated CG practices improves market liquidity in Kenya. The results are remarkably robust to different measures of liquidity and supports agency and signaling theory.

We provide evidence that security regulation improves stock market liquidity in a frontier market whose characteristics are thought not to favor regulation. Therefore the regulators and stakeholders could be motivated by the benefits of regulation and this could lead to renewed effort to improve the current compliance from the current 61.4%, to higher levels.

Our finding shows that security market regulation through CG guidelines can improve stock market liquidity in frontier markets. This offers regulators and policy makers a strong motivation to enhance security regulation to strengthen capital market confidence.

Keywords: Corporate Governance, Corporate Governance Practices, Security Market Regulation, Stock Market Liquidity, Kenya

JEL Classification: G10, G18, G38, K22, M41

Suggested Citation

Outa, Erick Rading and Waweru, Nelson Maina and Ozili, Peterson K, Corporate Governance and Stock Market Liquidity (November 22, 2019). Available at SSRN: or

Erick Rading Outa (Contact Author)

Charles Darwin University ( email )

21 Kitchener Drive
Darwin, Northern Territory 0800


Nelson Maina Waweru

York University - School of Administrative Studies ( email )

4700 Keele St.
Toronto, Ontario M3J1P3
+14167362100 (Phone)
+14167365963 (Fax)

Peterson K Ozili

Independent ( email )


Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics