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The relationship between liquidity, corporate governance, and firm valuation: Evidence from Russia

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  • Li, Wei-Xuan
  • Chen, Clara Chia-Sheng
  • French, Joseph J.

Abstract

This paper examines the hypotheses that liquidity improves corporate governance, and better governance enhances valuation of Russian firms. We find a positive causal relationship between measures of liquidity and corporate governance. Additionally, we document the strong positive impact of corporate governance on valuation. Our results are economically significant. For example, we document that a 10% decrease in the proportion of zero return days implies a 0.34% increase in transparency and disclosure, which in turn leads to a 9.6% increase in firm valuation. Our research findings shed light on the important role of liquidity in improving corporate governance and valuation.

Suggested Citation

  • Li, Wei-Xuan & Chen, Clara Chia-Sheng & French, Joseph J., 2012. "The relationship between liquidity, corporate governance, and firm valuation: Evidence from Russia," Emerging Markets Review, Elsevier, vol. 13(4), pages 465-477.
  • Handle: RePEc:eee:ememar:v:13:y:2012:i:4:p:465-477 DOI: 10.1016/j.ememar.2012.07.004
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    1. repec:eee:reveco:v:50:y:2017:i:c:p:275-304 is not listed on IDEAS
    2. repec:pje:journl:article27winviii is not listed on IDEAS
    3. Batten, Jonathan A. & Jacoby, Gady & Liao, Rose C., 2014. "Corporate yield spreads and real interest rates," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 89-100.
    4. Davydov, Denis & Nikkinen, Jussi & Vähämaa, Sami, 2014. "Does the decision to issue public debt affect firm valuation? Russian evidence," Emerging Markets Review, Elsevier, vol. 20(C), pages 136-151.
    5. repec:eee:riibaf:v:42:y:2017:i:c:p:102-123 is not listed on IDEAS
    6. Joseph J. French & Rodrigo Taborda, 2017. "Disentangling the relationship between liquidity and returns in Latin America," DOCUMENTOS CEDE 015606, UNIVERSIDAD DE LOS ANDES-CEDE.
    7. Florinita DUCA, 2014. "Does Corporate Governance Affect Firm Liquidity? Empirical Evidence from Romania," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 62(10), pages 79-82, Octomber.

    More about this item

    Keywords

    Corporate governance; Liquidity; Russia; Tobin's Q;

    JEL classification:

    • F39 - International Economics - - International Finance - - - Other
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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