Corporate governance, institutional ownership, and stock liquidity of SMEs: evidence from China

Wei Liu and Yoshihisa Suzuki

Asia-Pacific Journal of Accounting & Economics, 2025, vol. 32, issue 2, 299-328

Abstract: This study explores the relationship between corporate governance and stock liquidity of Chinese small and medium-sized enterprises (SMEs). Our findings reveal a nonlinear (U-shaped) relationship between the overall quality of corporate governance and stock liquidity, implying that, unlike large-sized listed firms, SMEs cannot monotonically increase liquidity through improved corporate governance. After examining the sub-indicators individually, we find that the percentage of institutional shareholdings is the main driver of this U-shaped relationship. The nonlinear relationship between institutional shareholdings and stock liquidity suggests that continuously enhancing corporate governance may reduce stock liquidity, posing challenges for SMEs in securing financing.

Date: 2025
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DOI: 10.1080/16081625.2024.2353063

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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