Advanced Search
MyIDEAS: Login to save this paper or follow this series

Stock Markets Liquidity, Corporate Governance and Small Firms

Contents:

Author Info

  • Solomon Tadesse

    ()

Abstract

While the importance of equity markets as a vehicle for capital formation is well recognized, their role in providing economically valuable governance services, particularly to small and medium enterprises (SME), has not received much attention. The paper examines the role of public policy in promoting the governance role of secondary equity markets for the benefit of SMEs. The paper first outlines the mechanisms through which equity markets could promote good governance in small firms, showing that equity markets serve as a monitoring and control conduit for outsiders to enforce good governance at the firm. It then establishes that the ability of equity markets to deliver good governance is closely related to those markets’ liquidity, presenting further international evidence that firms supported by liquid equity markets realize improved economic performance. Thus, the governance services of secondary equity markets have real economic value to the firms. The paper then argues that public policy can have a positive impact on the effectiveness of equity markets in delivering governance services through enhancing market liquidity. It examines the impact on market liquidity of two significant U.S. Securities and Exchange Commission (SEC) regulatory reforms applied to The Nasdaq Stock Market: SEC’s ‘trade reporting’ rules of 1992, and SEC’s “order handling” reforms of 1997. The paper concludes that public policies that increase market transparency and efficiency—such as “trade reporting” requirements and better “order handling” rules—promote the effectiveness of the secondary equity markets in delivering corporate governance through increased market liquidity.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp883.pdf
Download Restriction: no

Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp883.

as in new window
Length: pages
Date of creation: 01 Jun 2005
Date of revision:
Handle: RePEc:wdi:papers:2007-883

Contact details of provider:
Postal: 724 E. University Ave, Wyly Hall 1st Flr, Ann Arbor MI 48109
Phone: 734 763-5020
Fax: 734 763 5850
Email:
Web page: http://www.wdi.umich.edu
More information through EDIRC

Related research

Keywords: Governance; Stock Markets and Liquidity;

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wdi:papers:2007-883. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laurie Gendron).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.