Board effectiveness and firm value: A mediating role of stock liquidity

Ramiz Ur Rehman; Muhammad Akram Naseem; Mudassar Hasan; Muhammad Ishfaq Ahmad; Ender Demir

doi:10.1142/S0217590823500261

Board effectiveness and firm value: A mediating role of stock liquidity

Ramiz Ur Rehman, Muhammad Akram Naseem, Mudassar Hasan, Muhammad Ishfaq Ahmad, Ender Demir^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

Abstract

We test whether an effective board affects firm value (FV) in Pakistan and whether stock liquidity (LIQ) mediates this relationship. To test this conjecture, we introduce an effective board index (EBI) using board size, board independence, board diversity and CEO duality. By employing the fixed effect model, we find that an effective board reduces agency costs and thus increases FV. An effective board may signal investors positively regarding reduced information asymmetry, thereby increasing stock LIQ. Furthermore, stock LIQ partially mediates the relationship between the effective board and FV. However, only Amihud illiquidity mediates this relationship, which suggests the stock liquidity's estimation matters.

Original language	English
Journal	Singapore Economic Review
Early online date	13 Jun 2023
DOIs	https://doi.org/10.1142/S0217590823500261
Publication status	E-pub ahead of print - 13 Jun 2023
Externally published	Yes

Keywords

Amihud illiquidity
Corwin Schultz liquidity spread
Effective board index
firm value
Pakistan

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title = "Board effectiveness and firm value: A mediating role of stock liquidity",

abstract = "We test whether an effective board affects firm value (FV) in Pakistan and whether stock liquidity (LIQ) mediates this relationship. To test this conjecture, we introduce an effective board index (EBI) using board size, board independence, board diversity and CEO duality. By employing the fixed effect model, we find that an effective board reduces agency costs and thus increases FV. An effective board may signal investors positively regarding reduced information asymmetry, thereby increasing stock LIQ. Furthermore, stock LIQ partially mediates the relationship between the effective board and FV. However, only Amihud illiquidity mediates this relationship, which suggests the stock liquidity's estimation matters.",

keywords = "Amihud illiquidity, Corwin Schultz liquidity spread, Effective board index, firm value, Pakistan",

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year = "2023",

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doi = "10.1142/S0217590823500261",

language = "English",

journal = "Singapore Economic Review",

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T1 - Board effectiveness and firm value

T2 - A mediating role of stock liquidity

AU - Rehman, Ramiz Ur

AU - Naseem, Muhammad Akram

AU - Hasan, Mudassar

AU - Ahmad, Muhammad Ishfaq

AU - Demir, Ender

PY - 2023/6/13

Y1 - 2023/6/13

N2 - We test whether an effective board affects firm value (FV) in Pakistan and whether stock liquidity (LIQ) mediates this relationship. To test this conjecture, we introduce an effective board index (EBI) using board size, board independence, board diversity and CEO duality. By employing the fixed effect model, we find that an effective board reduces agency costs and thus increases FV. An effective board may signal investors positively regarding reduced information asymmetry, thereby increasing stock LIQ. Furthermore, stock LIQ partially mediates the relationship between the effective board and FV. However, only Amihud illiquidity mediates this relationship, which suggests the stock liquidity's estimation matters.

AB - We test whether an effective board affects firm value (FV) in Pakistan and whether stock liquidity (LIQ) mediates this relationship. To test this conjecture, we introduce an effective board index (EBI) using board size, board independence, board diversity and CEO duality. By employing the fixed effect model, we find that an effective board reduces agency costs and thus increases FV. An effective board may signal investors positively regarding reduced information asymmetry, thereby increasing stock LIQ. Furthermore, stock LIQ partially mediates the relationship between the effective board and FV. However, only Amihud illiquidity mediates this relationship, which suggests the stock liquidity's estimation matters.

KW - Amihud illiquidity

KW - Corwin Schultz liquidity spread

KW - Effective board index

KW - firm value

KW - Pakistan

UR - https://www.scopus.com/pages/publications/85163156441

U2 - 10.1142/S0217590823500261

DO - 10.1142/S0217590823500261

M3 - Article

AN - SCOPUS:85163156441

SN - 0217-5908

JO - Singapore Economic Review

JF - Singapore Economic Review

ER -

Board effectiveness and firm value: A mediating role of stock liquidity

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