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The political institutional and firm governance determinants of liquidity: Evidence from North Africa and the Arab Spring

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  • Hearn, Bruce

Abstract

This study undertakes a unique comparison into the relative efficacy of four well established liquidity measures, namely turnover, proportion of daily zero returns, Amihud (2002) and Liu (2006), in explaining the bid-ask spread plus brokerage costs when powerful and common firm governance mechanisms are taken into account as controls. These are representative of ownership of listed firms by state, long term foreign partners, entrepreneurial founders, single family entities, extended family groups and business networks, domestic and foreign venture capitalists. An additional control for firms within business network controlled by former Tunisian premier, Ben Ali, and Morocco's royal family is also included. Using a unique sample of all listed firms across the equity markets of Egypt, Morocco, Tunisia and Algeria I find evidence of equity capital rationing during the Arab Spring period of political upheaval. Less well regulated SME markets such as Morocco's marche croissance have liquidity-based transactions costs attributable to Arab Spring four times those of the marche principal while those in Egypt's Nilex are twenty times those of the prestigious EGX30 index. Finally the greatest changes in political risks associated with aggregate liquidity across the Arab Spring are democratic accountability, military in politics, and law and order.

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  • 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.
    • Handle: RePEc:eee:intfin:v:31:y:2014:i:c:p:127-158
    DOI: 10.1016/j.intfin.2014.03.006
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    5. Samuel Kwesi Dunyo & Samuel Amponsah Odei, 2023. "Firm-Level Innovations in an Emerging Economy: Do Perceived Policy Instability and Legal Institutional Conditions Matter?," Sustainability, MDPI, vol. 15(2), pages 1-24, January.
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    8. Michael Siemon, 2018. "Price Synchronicity, Inter-Firm Networks, and Business Groups in the Middle East and North Africa," Working Papers 1267, Economic Research Forum, revised 10 Dec 2018.
    9. Boamah, Nicholas Addai & Watts, Edward J. & Loudon, Geoffrey, 2017. "Financial crisis, the real sector and global effects on the African stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 88-96.
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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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