The Impact of corporate governance mechanism on liquidity with the simultaneous equation system (Evidence from Tehran Stock Exchange)

Decreasing of transaction costs is related to improving of corporate governance mechanism. In this study, we determine corporate governance score by questions in to six sub indexes, namely: information disclosure, ethics, education, legality, auditing and ownership. Then we examined the relation between corporate governance score and liquidity. We control the firm heterogeneity with a fixed effects estimator and firm endogeneity with the simultaneous equation system. Using archival data from data cross-section samples of 70 firms the obtained results indicate by using the simultaneous equation system there is a positive correlation between corporate governance score and liquidity at the 95% confidence level. These results are emphasis on necessity of implementation of corporate governance mechanism in Tehran stock Exchange.