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Firm level governance and institutional determinants of liquidity: Evidence from Sub Saharan Africa

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  • Hearn, Bruce
  • Piesse, Jenifer

Abstract

This study contrasts well established liquidity measures, namely volume-based turnover ratio, related price-impact Amihud (2002) construct and the multidimensional Liu (2006) indicator alongside the Lesmond, Ogden, and Trzcinka (1999) proportion of zero daily returns metric in explaining bid-ask spread plus commissions costs. We control for six critical firm governance characteristics that impact liquidity alongside the market-based controls that are conventionally solely included in the literature. Using a unique sample of 12 Sub Saharan African (SSA) equity markets, namely Kenya, Mauritius, Zambia, Zimbabwe, Botswana, Malawi, Namibia, Nigeria, Ghana, BRVM (Cote d'Ivoire), and then South Africa's ALT-x and Main boards we find evidence that state and foreign venture capitalist involvement in firms enhances liquidity while involvement of foreign partners, entrepreneurial founders, domestic venture capital and inclusion within an extended business or family network has opposite effect. The evidence supports the use of the proportion of daily zero returns measure in preference to other measures in capturing illiquidity. Furthermore we find that liquidity is closely associated with three of six World Bank Governance measures of institutional quality with these being government effectiveness, regulatory quality and rule of law.

Suggested Citation

  • Hearn, Bruce & Piesse, Jenifer, 2013. "Firm level governance and institutional determinants of liquidity: Evidence from Sub Saharan Africa," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 93-111.
    • Handle: RePEc:eee:finana:v:28:y:2013:i:c:p:93-111
    DOI: 10.1016/j.irfa.2013.02.004
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    Cited by:

    1. Hearn, Bruce & Oxelheim, Lars & Randøy, Trond, 2018. "The institutional determinants of private equity involvement in business groups—The case of Africa," Journal of World Business, Elsevier, vol. 53(2), pages 118-133.
    2. Nadia Belkhir Boujelbene & Abdelfatteh Bouri & Jean-Luc Prigent, 2014. "Corporate Governance and Market Microstructure: Evidence on Institutional Investors in the Tunisian Stock Exchange," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(2), pages 58-71, April.
    3. Beisland, Leif Atle & Mersland, Roy & Randøy, Trond, 2014. "The Association between microfinance rating scores and corporate governance: a global survey," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 268-280.
    4. Jamaani, Fouad & Ahmed, Abdullahi D., 2021. "Modifier effects of country-level transparency on global underpricing difference: New hierarchical evidence," International Review of Financial Analysis, Elsevier, vol. 74(C).
    5. Areneke, Geofry & Adegbite, Emmanuel & Tunyi, Abongeh, 2022. "Transfer of corporate governance practices into weak emerging market environments by foreign institutional investors," International Business Review, Elsevier, vol. 31(5).
    6. Oloko, Tirimisiyu F., 2018. "Portfolio diversification between developed and developing stock markets: The case of US and UK investors in Nigeria," Research in International Business and Finance, Elsevier, vol. 45(C), pages 219-232.
    7. Mahdi Tajeddin & Michael Carney, 2019. "African Business Groups: How Does Group Affiliation Improve SMEs’ Export Intensity?," Entrepreneurship Theory and Practice, , vol. 43(6), pages 1194-1222, November.
    8. Hearn, Bruce, 2014. "Institutional impact on the expropriation of private benefits of control in North Africa," Research in International Business and Finance, Elsevier, vol. 30(C), pages 1-23.
    9. Boamah, Nicholas Addai & Loudon, Geoffrey & Watts, Edward J., 2017. "Structural breaks in the relative importance of country and industry factors in African stock returns," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 79-88.
    10. Hearn, Bruce, 2015. "Institutional influences on board composition of international joint venture firms listing on emerging stock exchanges: Evidence from Africa," Journal of World Business, Elsevier, vol. 50(1), pages 205-219.
    11. Acquaah, Moses, 2015. "Determinants of corporate listings on stock markets in Sub-Saharan Africa: Evidence from Ghana," Emerging Markets Review, Elsevier, vol. 22(C), pages 154-175.
    12. Donou-Adonsou, Ficawoyi, 2019. "Colonialism ties and stock markets: Evidence from Sub-Saharan Africa," Research in International Business and Finance, Elsevier, vol. 47(C), pages 327-343.
    13. Hearn, Bruce & Strange, Roger & Piesse, Jenifer, 2017. "Social elites on the board and executive pay in developing countries: Evidence from Africa," Journal of World Business, Elsevier, vol. 52(2), pages 230-243.
    14. Boamah, Nicholas Addai & Watts, Edward & Loudon, Geoffrey, 2017. "Regionally integrated asset pricing on the African stock markets: Evidence from the Fama French and Carhart models," Journal of Economics and Business, Elsevier, vol. 92(C), pages 29-44.
    15. repec:hur:ijaraf:v:4:y:2014:i:2:p:62-75 is not listed on IDEAS
    16. Hearn, Bruce, 2014. "The liquidity cost implications arising from the attraction of regional primary listings: Evidence from West Africa," Research in International Business and Finance, Elsevier, vol. 30(C), pages 91-110.
    17. Boako, Gideon & Alagidede, Paul, 2018. "African stock markets in the midst of the global financial crisis: Recoupling or decoupling?," Research in International Business and Finance, Elsevier, vol. 46(C), pages 166-180.
    18. Edward A. E. Jones & Anthony K. Kyiu & Hao Li, 2021. "Earnings informativeness and trading frequency: Evidence from African markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1064-1086, January.
    19. Hearn, Bruce, 2014. "The political institutional and firm governance determinants of liquidity: Evidence from North Africa and the Arab Spring," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 127-158.
    20. Owusu Junior, Peterson & Tweneboah, George, 2020. "Are there asymmetric linkages between African stocks and exchange rates?," Research in International Business and Finance, Elsevier, vol. 54(C).
    21. Bruce Hearn & Jenifer Piesse, 2015. "The Impact of Firm Size and Liquidity on the Cost of External Finance in Africa," South African Journal of Economics, Economic Society of South Africa, vol. 83(1), pages 1-22, March.
    22. Hearn, Bruce, 2014. "The impact of institutions, ownership structure, business angels, venture capital and lead managers on IPO firm underpricing across North Africa," Journal of Multinational Financial Management, Elsevier, vol. 24(C), pages 19-42.
    23. Abel Ebeh Ezeoha, 2017. "Corporate Finance in Africa: The Interactive Impact of Firm Nationality and Characteristics," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 849-873, August.
    24. Tran, Ly Thi Hai & Hoang, Thao Thi Phuong & Tran, Hoa Xuan, 2018. "Stock liquidity and ownership structure during and after the 2008 Global Financial Crisis: Empirical evidence from an emerging market," Emerging Markets Review, Elsevier, vol. 37(C), pages 114-133.

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    More about this item

    Keywords

    Liquidity; Liquidity determinants; Emerging financial markets; Africa;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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