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Corporate Governance and Firm Liquidity: Evidence from the Chinese Stock Market

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  • Ke Tang
  • Changyun Wang

Abstract

This paper examines the cross-sectional relation between corporate governance and firm liquidity in the Chinese stock market. We construct a measure of overall quality of governance based on publicly available information for each firm listed on the Shanghai Stock Exchange (SHSE) and the Shenzhen Stock Exchange (SZSE) for each year over the 1999-2004 interval. After accounting for other liquidity-related factors, we present strong evidence that the level of corporate governance is positively related to firm liquidity. An increase of 1 percent in corporate governance index (total 100 percent) is on average associated with a 1.2 percent increase in a firm's annual turnover ratio over the subsequent year. Results from examinations of subindices of corporate governance provide further support for the positive governance-liquidity relation. These findings have important implications for academics to investigate the value of enhancing corporate governance, and for regulators to promote corporate governance reform.

Suggested Citation

  • Ke Tang & Changyun Wang, 2011. "Corporate Governance and Firm Liquidity: Evidence from the Chinese Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(0), pages 47-60, January.
  • Handle: RePEc:mes:emfitr:v:47:y:2011:i:0:p:47-60
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ding, Mingfa, 2014. "Political Connections and Stock Liquidity: Political Network, Hierarchy and Intervention," Knut Wicksell Working Paper Series 2014/7, Lund University, Knut Wicksell Centre for Financial Studies.
    2. P. Krishna Prasanna & Anish S. Menon, 2012. "Corporate governance and stock market liquidity in India," International Journal of Behavioural Accounting and Finance, Inderscience Enterprises Ltd, vol. 3(1/2), pages 24-45.
    3. 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.
    4. Ming-Chang Wang & Yung-Chuan Lee, 2012. "The Signaling Effect of Independent Director Appointments," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(5), pages 25-47, September.
    5. PengCheng Zhu & Vijay Jog, 2012. "Impact on Target Firm Risk-Return Characteristics of Domestic and Cross-Border Mergers and Acquisitions in Emerging Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(4), pages 79-101, July.
    6. Song-Hua Hu & Guang Li & Yue-Hua Xu & Xu-Ang Fan, 2012. "Effects of Internal Governance Factors on Cross-Border-Related Party Transactions of Chinese Companies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 58-73, January.
    7. Yao-Hung Yang & Ya-Hui Lin & Ghi-Feng Yen, 2012. "A Study on Efficiency Monitoring and Interest Assimilation in Corporate Governance: Listed Companies in Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 169-183, July.
    8. Yanjian Zhu & Xiaoneng Zhu, 2012. "Impact of the Share Structure Reform on the Role of Operating Related Party Transactions in China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(6), pages 73-94, November.
    9. Yanjian Zhu & Xiaoneng Zhu, 2012. "Impact of the Share Structure Reform on the Role of Operating Related Party Transactions in China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(6), pages 73-94, November.
    10. Ming-Chang Wang & Yung-Chuan Lee, 2012. "The Signaling Effect of Independent Director Appointments," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(5), pages 25-47, September.
    11. Zhian Chen & Xin Cui, 2012. "Decomposing the Bid-Ask Spread in a Segmented Equity Market: Analyzing Chinese A Shares Versus B Shares," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(4), pages 30-49, July.
    12. PengCheng Zhu & Vijay Jog, 2012. "Impact on Target Firm Risk-Return Characteristics of Domestic and Cross-Border Mergers and Acquisitions in Emerging Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(4), pages 79-101, July.
    13. Yao-Hung Yang & Ya-Hui Lin & Ghi-Feng Yen, 2012. "A Study on Efficiency Monitoring and Interest Assimilation in Corporate Governance: Listed Companies in Taiwan," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 169-183, July.
    14. Zhian Chen & Xin Cui, 2012. "Decomposing the Bid-Ask Spread in a Segmented Equity Market: Analyzing Chinese A Shares Versus B Shares," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(4), pages 30-49, July.
    15. Haß, Lars Helge & Vergauwe, Skrålan & Zhang, Qiyu, 2014. "Corporate governance and the information environment: Evidence from Chinese stock markets," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 106-119.
    16. Song-Hua Hu & Guang Li & Yue-Hua Xu & Xu-Ang Fan, 2012. "Effects of Internal Governance Factors on Cross-Border-Related Party Transactions of Chinese Companies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 58-73, January.
    17. 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.

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