Firm level governance and institutional determinants of liquidity: evidence from Sub Saharan Africa

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Hearn, Bruce and Piesse, Jenifer (2013) Firm level governance and institutional determinants of liquidity: evidence from Sub Saharan Africa. International Review of Financial Analysis, 28. pp. 93-111. ISSN 1057-5219

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Abstract

This study contrasts well established liquidity measures, namely volume-based turnover ratio, related price-impact Amihud (2002) construct and the multidimensional Liu (2006) indicator alongside the Lesmond, Ogden and Trzcinka (1999) proportion of zero daily returns metric in explaining bid-ask spread plus commissions costs. We control for six critical firm governance characteristics that impact liquidity alongside the market-based controls that are conventionally solely included in the literature. Using a unique sample of 12 Sub Saharan African (SSA) equity markets, namely Kenya, Mauritius, Zambia, Zimbabwe, Botswana, Malawi, Namibia, Nigeria, Ghana, BRVM (Cote d’Ivoire), and then South Africa’s ALT-x and Main boards we find evidence that state and foreign venture capitalist involvement in firms enhances liquidity while involvement of foreign partners, entrepreneurial founders, domestic venture capital and inclusion within an extended business or family network has opposite effect. The evidence supports the use of the proportion of daily zero returns measure in preference to other measures in capturing illiquidity. Furthermore we find that liquidity is closely associated with three of six World Bank Governance measures of institutional quality with these being government effectiveness, regulatory quality and rule of law

Item Type: Article
Keywords: Liquidity; Liquidity Determinants; Emerging Financial Markets; Africa
Schools and Departments: School of Business, Management and Economics > Business and Management
Subjects: H Social Sciences > HG Finance > HG0178 Liquidity
Depositing User: Bruce Hearn
Date Deposited: 18 Mar 2013 13:47
Last Modified: 21 May 2013 11:39
URI: http://sro.sussex.ac.uk/id/eprint/43814

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