Economic Policy Uncertainty and Stock Liquidity: The Role of Board Networks in an Emerging Market

Abstract

This study examines the role of board networks in promoting stock liquidity in periods of heightened economic policy uncertainty using a sample of Brazilian firms from 2002-2018. Firstly, the findings show that economic policy uncertainty disproportionately contributes to stock illiquidity. This impact is mainly prominent for high-risk companies, small firms and firms in competitive industries. Secondly, we provide evidence that board networks promote stock liquidity more via the information channel when economic policy uncertainty is very high. Unlike other studies that focus on the adverse effects of economic policy uncertainty on firm outcomes, our novel contribution is that we uncover the role of board networks in mitigating the negative effects of economic policy uncertainty on stock liquidity.

Keywords: Brazil, board interlock, director network; economic policy uncertainty, emerging market, information asymmetry, corporate governance, stock liquidity.

JEL Classification: D85; G14; G18; G34; L14