This study analyzes the relationship between governance and stock liquidity. It uses different variables of corporate board characteristics and test three proxies of a bid-ask spread. It also provides comprehensive and robust evidence for the association between the corporate board and stock liquidity in the pure order-driven Tunisian market.
This study is based on a sample covering all financial firms in Tunisia (banks, insurances and leasing companies) from 2008 to 2019. It employs a panel data approach.
The author finds a negative relationship between board sizes, financial institutional members in corporate board and bid-ask spread (absolute, relative and effective spread). The author suggests that better-managed firms have greatly improved their stock liquidity and lower trading cost. The empirical results reveal that better corporate governance firms improve stock liquidity since it is associated with higher information disclosure.
This research encourages Tunisian firms to develop their governance mechanisms and restructure their board organization to improve stock liquidity. It can support the regulators to simultaneously design appropriate governance recommendations, disclosure policies and trading regulations.
The author presents empirical evidence of the role of corporate board on the bid-ask spread in an emerging market. The research is the first to analyze the corporate board characteristics using seven variables representatives of the board of directors and without using the governance index.
