Liquidity and Corporate Governance

13 Pages Posted: 15 Jan 2020

See all articles by Tom Berglund

Tom Berglund

Hanken School of Economics - Department of Economics

Date Written: December 16, 2019

Abstract

This paper discusses the relationship between stock market liquidity and corporate governance. Both concepts are widely investigated from different angles in the literature. It is generally agreed that they are related so that better corporate governance implies higher liquidity for shares of listed companies. However, the importance of good corporate governance for the market liquidity of the share will differ depending on the characteristics of the firm’s business. Good corporate governance will be particularly important in reducing agency problems in firms subject to a high degree of uncertainty. Proper corporate governance, in other words, matters most in cases where external assessment of the firm’s business prospects is difficult, while it is less important for value creation in firms where the business is easier to understand.

Keywords: Market liquidity, Corporate governance, asymmetric information, agency problems

JEL Classification: G14, G32

Suggested Citation

Berglund, Tom Patrik, Liquidity and Corporate Governance (December 16, 2019). Proceedings of the 4th Chapman Conference on Money & Finance on Liquidity: Pricing, Management and Financial Stability, Available at SSRN: https://ssrn.com/abstract=3519588 or http://dx.doi.org/10.2139/ssrn.3519588

Tom Patrik Berglund (Contact Author)

Hanken School of Economics - Department of Economics ( email )

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