The effect of corporate governance on stock liquidity: The case of Thailand

Panu Prommin, Seksak Jumreornvong, Pornsit Jiraporn

Research output: Contribution to journalArticlepeer-review

40 Scopus citations

Abstract

Grounded in agency theory, this study explores the effect of corporate governance on equity liquidity in Thailand. Theory suggests that effective governance enhances financial and operational transparency, which in turn, reduces adverse selection. Facing less adverse selection problems, traders provide more liquidity to stocks of well-governed firms. Based on a sample of largest firms in Thailand from 2006 to 2009, our results show a significant relationship between governance and liquidity within firms over time. In particular, within firms, when governance quality increases, liquidity significantly improves. For instance, a rise in governance quality by one standard deviation improves the liquidity ratio by 26.19%. We also show that our results are unlikely confounded by endogeneity.

Original languageEnglish (US)
Pages (from-to)132-142
Number of pages11
JournalInternational Review of Economics and Finance
Volume32
DOIs
StatePublished - Jul 2014

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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