Good Corporate Governance, Market Stock Liquidity, and Stock Return Volatility: French Context

Purpose: This paper aims to combine System and dynamic GMM methods and four - stage least squares in order to estimate the relationship between corporate governance- market stock liquidity and the stock return volatility. Design/Methodology/Approach: By applying these methods to French companies listed on the SBF 120 index, for a period including the financial crisis years during 2009 -2015. Findings: The findings show that the institutional investor and the board size are important factors into reducing the stock market return volatility, that the proportion of institutional investors has a positive and significant effect on stock-market liquidity. On the other hand, the existence of good governance index and foreign directors increases the stock market returns. Practical Implications: We believe that our findings further confirm the importance of corporate governance and therefore can help investors and financial economists to understand the behavior of the stock prices. Although the existing studies have referred to the influence of corporate governance on stock market returns and volatility, no one has ever discussed whether better corporate governance can help reduce the stock price volatility in such a situation. Originality/Value: Since the stock returns and risks are the major two factors that need to be considered by investors, our findings suggest that investors need to seriously appraise the firm's corporate governance when making investment decisions, because better corporate governance not only has a positive effect on the stock returns but can also stabilize the stock price volatility.