Searat Ali

What determines stock liquidity in Australia

ABSTRACT Using an index of corporate governance quality (CGQ), we provide the first robust evidence of the determinants of stock liquidity in Australia. We assume that CGQ affects stock liquidity because effective governance decreases information asymmetries between insiders (e.g. managers) and outsiders (e.g. investors), as well as among outsiders, by improving information transparency of a firm. Consistent with agency theory, this study, using 435 large capitalization firms over the period from 2001 to 2008, finds a significant positive relationship between CGQ and stock liquidity, suggesting that better governed firms have a higher level of stock liquidity. These findings are robust to alternative proxies of CGQ, stock liquidity and endogeneity bias.

Corporate Governance and the Insolvency Risk of Financial Institutions

Abstract We investigate whether shareholder-friendliness of corporate governance mechanisms is related to insolvency risk of financial institutions. Using a large sample of U.S. financial institutions over the period 2005–2010, we find that corporate governance is positively related with insolvency risk of financial institutions as proxied by Merton’s distance to default measure and credit default swap (CDS) spread. We also find that “stronger” corporate governance increases insolvency risk relatively more for larger financial institutions and during the period of the financial crisis. Overall, our results suggest that shareholder-friendliness of corporate governance mechanisms are viewed unfavorably in the bond market.