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Liquidity and firm performance: evidence from the MENA region

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  • Omar Farooq
  • Fatima Zahra Bouaich

Abstract

How can individual investors infer value relevant information from publicly available data in information scarce emerging markets? Using a large data set from the MENA region (Morocco, Egypt, Saudi Arabia, United Arab Emirates, Jordan, Kuwait and Bahrain), we document a significantly positive relationship between liquidity and firm performance. We argue that higher level of information asymmetries in the MENA region exposes stock market participants to excessive risk, and therefore any mechanism that can provide them with opportunity to lower this risk (by exiting the stock) is valuable. Our results also show that this relationship is stronger in the civil law countries than in the common law countries. Civil law countries have weaker investor protection mechanisms, thereby exposing investors to more risk. As a consequence, liquidity is valued more in the civil law countries relative to the common law countries.

Suggested Citation

  • Omar Farooq & Fatima Zahra Bouaich, 2012. "Liquidity and firm performance: evidence from the MENA region," International Journal of Business Governance and Ethics, Inderscience Enterprises Ltd, vol. 7(2), pages 139-152.
    • Handle: RePEc:ids:ijbget:v:7:y:2012:i:2:p:139-152
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    Cited by:

    1. Larissa Batrancea, 2020. "An Econometric Approach on Performance and Financial Equilibrium during the COVID-19 Pandemic," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 801-808, December.
    2. Saleh, Mustaruddin, 2021. "Determinant Factors of the Public Company’s Value which Listed in Indonesia Stock Exchange," OSF Preprints gbya7, Center for Open Science.

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