The Role of Ownership Structure and Board Characteristics in Stock Market Liquidity

Abstract

Corporate governance plays a significant role in the value of shareholders and share prices, hence stock market liquidity is affected. Previous research has mainly focused on the issue in developed markets, whereas in developing countries there is a need to analyze the influence of corporate governance on stock market liquidity. Therefore, the present study aims to examine the impact of ownership structure and board characteristics on stock market liquidity of non-financial firms of South Asian countries such as Pakistan, Sri Lanka, Bangladesh, and India. The data in the study is collected from the DataStream for the 2011–2020 period. The study uses a fixed effect model for the analysis of the data and hypotheses testing and generalized method of moments (GMM) is used to check the robustness of the results. The findings of the study indicate that institutional ownership, board size, board independence, and CEO duality have a significant and positive impact on stock market liquidity, whereas managerial ownership has a significant and negative effect on stock market liquidity.

Board Structure and Stock Market Liquidity: Evidence from Saudi's Banking Industry

“…This indicates that the higher the board size, the higher the stock market liquidity. This is consistent with the findings of Daadaa (2021) and Abbassi et al (2021), and is also in line with the debate that larger boards have more resources to monitor managerial performance and have skills to form various effective committees, allocate specific tasks, and facilitate greater debating on corporate issues. This can lead to greater information transparency (Anderson et al, 2004;Klein, 2002).…”

“…That is, board size is positively correlated with stock liquidity. Abbassi et al (2021) also indicated that board size has a positive effect on stock liquidity. Based on the arguments above, the following hypothesis is developed: H1: Board size improves stock liquidity.…”

“…The author suggested that firms with good corporate governance improve their stock market liquidity as it is associated with higher information disclosure. Furthermore, Abbassi, Hunjra, Alawi, and Mehmood (2021) examined the impact of board composition on the stock market liquidity in South Asian countries, such as India, Bangladesh, Sri Lanka and Pakistan, from 2011 and 2020. They showed that board size, chief executive officer (CEO) duality and board independence have a positive and significant impact on stock liquidity.…”

“…In addition, they indicated that improvements in the board's independence over time are positively related to improvements in the firm's stock liquidity. Moreover, Abbassi et al (2021) indicated that board independence has a positive impact on stock liquidity.…”

Does financial transparency substitute corporate governance to improve stock liquidity? Evidence from emerging market of Pakistan

“…Gul et al (2011) also state that female directors expect higher monitoring levels, in the form of auditing, than their male colleagues. (Abbassi et al, 2021) conducted Research stated that the large board of directors enhances stock liquidity because board members play vital monitoring role to reduce information asymmetry and eventually helping to enhance stock liquidity. Mbanyele (2021) argued that board networks enhances stock liquidity more via the information channel when economic policy uncertainty is high.…”