A Review of Relation Between Corporate Governance and Market Liquidity

Investors rely on quality, quantity and timeliness of disclosed information for decision making. The way investors conduct with this information and their decision, would form the capacity of supply and demand or on the other hand market depth and offered prices of selling and buying. On the other hand, a well structured corporate governance system has a great role in directing investors and market players and realization of a liquid market. On the basis of this concept in this research, we study the relationship between corporate governance system and market liquidity. A minimum of 100 days trading is required for the sample companies. In this regard, data of 61listed companies in Tehran stock exchange collected for 1386. Then, bid-ask spread information's and supply and demand volume has been collected and their relation with corporate governance quality has been examined. Results of the research show that companies with more independent board and more efficient approach have more market liquidity in comparison with other companies. In fact, the companies which have better corporate governance quality grades, have less bid-ask spreads and less differential share demand and supply.