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Fiduciary or loyalty? Evidence from top management counsel and stock liquidity

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  • Michael, Michael
  • Ali, Muhammad Jahangir
  • Atawnah, Nader
  • Muniandy, Balachandran

Abstract

We examine whether and how corporate top management counsel (TMC) influences stock liquidity and document a significant positive association. Our results remained robust to a series of sensitivity tests and continue to hold after accounting for potential endogeneity concerns. We identify a reduction in information asymmetry and business risk as the channel through which TMC affects stock liquidity. Further tests reveal that the positive relationship is stronger when the CEO has no legal expertise and in the post-SOX period, where firms are mandated to have in-house counsel. Our paper contributes to the ongoing debate on the dual paradox of TMC's role (gatekeeper v. facilitator) and has policy implications.

Suggested Citation

  • Michael, Michael & Ali, Muhammad Jahangir & Atawnah, Nader & Muniandy, Balachandran, 2022. "Fiduciary or loyalty? Evidence from top management counsel and stock liquidity," Global Finance Journal, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:glofin:v:52:y:2022:i:c:s1044028322000114
    DOI: 10.1016/j.gfj.2022.100709
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    More about this item

    Keywords

    Top management counsel; Stock liquidity; Information asymmetry; Risk management; Sarbanes–Oxley act of 2002 (SOX);
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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