Corporate Governance and Liquidity: Pre- and Post-Crisis Analysis from the MENA Region

Farooq Omar (), Derrabi Mohamed () and Naciri Monir ()
Additional contact information
Farooq Omar: Omar Farooq: American University in Cairo, Cairo, Egypt
Derrabi Mohamed: Mundiapolis University, Casablanca, Morocco
Naciri Monir: Al Akhawayn University, Ifrane, Morocco

Review of Middle East Economics and Finance, 2013, vol. 8, issue 3, 1-19

Abstract: This paper examines the impact of corporate governance mechanisms on liquidity in the MENA region, i.e. Morocco, Egypt, Saudi Arabia, United Arab Emirates, Jordan, Kuwait, and Bahrain. Using turnover as a proxy for liquidity, we document significant difference in liquidity between the pre- and the post-crisis periods in the MENA region. In addition, our results show that bulk of this reduction in turnover can be explained due to weaknesses of corporate governance mechanisms. For example, that dividend payout ratio and choice of auditors – proxies for agency problems – can explain the entire difference in liquidity between the two periods. Furthermore, our results indicate that more than 50% of this difference between the two periods can be explained by operational and informational complexity of a firm – proxy for transparency. We argue that poor corporate governance mechanisms increase information asymmetries between insiders and outsiders. Outsiders, being liquidity providers, therefore do not trade in stocks for which they have no information. Therefore, firms with poor governance mechanisms usually experience higher decline in liquidity during periods of market-wide uncertainty.

Keywords: Corporate Governance; Liquidity; Financial Crisis; Emerging Markets (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/rmeef-2012-0006 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:rmeecf:v:8:y:2013:i:3:p:1-19:n:2

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/rmeef/html

DOI: 10.1515/rmeef-2012-0006

Access Statistics for this article

Review of Middle East Economics and Finance is currently edited by Ghassan Dibeh

More articles in Review of Middle East Economics and Finance from De Gruyter
Bibliographic data for series maintained by Peter Golla ().