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Market Liquidity and Ambiguity: The Certification Role of Corporate Governance
Author(s) -
X. Jiang Christine,
Kim JangChul,
Kuvvet Emre
Publication year - 2014
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12051
Subject(s) - ambiguity , corporate governance , business , certification , market liquidity , moderation , shareholder , accounting , economics , finance , computer science , machine learning , programming language , management
We investigate how firm‐specific certification practices through corporate governance can reduce perceived ambiguity and thus enhance liquidity of a firm in the stock market. We show that better corporate governance helps reduce ambiguity. In addition, a reduction in ambiguity is significantly related to higher liquidity of firms. Our results are robust to alternative model specifications and measures of ambiguity, and remain statistically significant after controlling for other known determinants of ambiguity and liquidity. Our results shed light on how ambiguity can be moderated through firm‐level certification practices and on the channel through which a moderation of ambiguity affects shareholder wealth.