The Political Institutional and Firm Governance Determinants of Liquidity: Evidence from North Africa and the Arab Spring

Journal of International Financial Markets, Institutions & Money, 31, 127-158, 2014

52 Pages Posted: 1 Apr 2022

See all articles by Bruce Allen Hearn

Bruce Allen Hearn

University of Southampton; University of Bradford - School of Management

Date Written: February 8, 2014

Abstract

This study undertakes a unique comparison into the relative efficacy of four well established liquidity measures, namely turnover, proportion of daily zero returns, Amihud (2002) and Liu (2006), in explaining the bid-ask spread plus brokerage costs when powerful and common firm governance mechanisms are taken into account as controls. These are representative of ownership of listed firms by state, long term foreign partners, entrepreneurial founders, single family entities, extended family groups and business networks, domestic and foreign venture capitalists. An additional control for firms within business network controlled by former Tunisian premier, Ben Ali, and Morocco’s royal family is also included. Using a unique sample of all listed firms across the equity markets of Egypt, Morocco, Tunisia and Algeria I find evidence of equity capital rationing during the Arab Spring period of political upheaval. Less well regulated SME markets such as Morocco’s marche croissance have liquidity-based transactions costs attributable to Arab Spring four times those of the marche principal while those in Egypt’s Nilex are twenty times those of the prestigious EGX30 index. Finally the greatest changes in political risks associated with aggregate liquidity across the Arab Spring are democratic accountability, military in politics, and law and order.

Keywords: Liquidity, liquidity determinants, emerging financial markets, Africa

Suggested Citation

Hearn, Bruce Allen, The Political Institutional and Firm Governance Determinants of Liquidity: Evidence from North Africa and the Arab Spring (February 8, 2014). Journal of International Financial Markets, Institutions & Money, 31, 127-158, 2014, Available at SSRN: https://ssrn.com/abstract=4030111

Bruce Allen Hearn (Contact Author)

University of Southampton ( email )

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

University of Bradford - School of Management ( email )

Emm Lane
Bradford, West Yorkshire Bd9 4JL
United Kingdom

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