HCBE Faculty Articles

Title

Market Liquidity and Ambiguity: The Certification Role of Corporate Governance

Document Type

Article

Date

2014

Publication Title

Financial Review

ISSN or ISBN

0732-8516

Volume

49

Issue

4

First Page

643

Last Page

668

Description

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.

DOI

10.1111/fire.12051

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