Does Corporate Governance Affect Stock Liquidity in the Tunisian Stock Market?

The aim of the current paper is to analyze the link between corporate governance and stock liquidity. We analyze first the effects of corporate governance on asymmetric information in stock market, and then we study their influence on stock liquidity. Drawing on a sample of 49 Tunisian firms listed between 1998 and 2007, we show that corporate governance has direct and indirect effects on stock liquidity. Threat of expropriation with family and foreign shareholders discourages reluctant investors, which decreases stock liquidity. In contrast, they prefer raising capital in State controlled firms. In fact, State is regarded as an effective controller rather than a shareholder. The State involvement in Tunisian firms is a positive signal on the quality of corporate governance: State guarantees and protects investors’ interests, which increases stock liquidity. Our results provide evidence that some mechanisms of corporate governance improve stock liquidity because they reduce information asymmetry.
JEL Classification: G10, G34
Keywords: corporate governance, shareholder identity, stock liquidity, Tunisian Stock Exchange