The impact of corporate governance and earnings management on stock market liquidity in a highly concentrated ownership capital market

Sasson Bar-Yosef*, Annalisa Prencipe

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

29 Scopus citations

Abstract

We provide insights to the effects of corporate governance mechanisms and earnings management on market liquidity (measured by bid-ask spreads [B-As] and trading volume) in a setting characterized by highly concentrated noninstitutional ownership. First, we document that high noninstitutional ownership increases B-As and depresses trading volumes. Next, we show that volume of trade tends to be higher and B-A tends to be lower for firms with better corporate governance mechanisms (e.g., board independence and CEO-chairman separation) when there is high concentration of noninstitutional ownership. In contrast to prior findings, when controlling for corporate governance quality, B-As are unaffected by earnings management, while trading volume increases when earnings management is higher, presumably due to an increase in investor disagreement. Our results are robust to changes in the market trading system across the sample period.

Original languageEnglish
Pages (from-to)292-316
Number of pages25
JournalJournal of Accounting, Auditing and Finance
Volume28
Issue number3
DOIs
StatePublished - Jul 2013
Externally publishedYes

Keywords

  • Corporate governance
  • Earnings management
  • Market liquidity
  • Ownership concentration

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