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Market Liquidity and Ambiguity: The Certification Role of Corporate Governance

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  • Christine X. Jiang
  • Jang-Chul Kim
  • Emre Kuvvet

Abstract

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.

Suggested Citation

  • Christine X. Jiang & Jang-Chul Kim & Emre Kuvvet, 2014. "Market Liquidity and Ambiguity: The Certification Role of Corporate Governance," The Financial Review, Eastern Finance Association, vol. 49(4), pages 643-668, November.
    • Handle: RePEc:bla:finrev:v:49:y:2014:i:4:p:643-668
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    File URL: http://hdl.handle.net/10.1111/fire.12051
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    Cited by:

    1. Ahmed, Ammad & Ali, Searat, 2017. "Boardroom gender diversity and stock liquidity: Evidence from Australia," Journal of Contemporary Accounting and Economics, Elsevier, vol. 13(2), pages 148-165.
    2. George D. Cashman & David M. Harrison & Michael J. Seiler & Hainan Sheng, 2019. "The Impact of Geographic and Cultural Dispersion on Information Opacity," The Journal of Real Estate Finance and Economics, Springer, vol. 59(2), pages 166-208, August.

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