Title

Types of agency cost, corporate governance and liquidity

Document Type

Article

Date of Original Version

5-1-2013

Abstract

We study the relationship between governance and liquidity when the agency costs of entrenched management and self-serving controlling shareholders are present. Using a sample of Chinese firms, we show a positive relationship between governance and liquidity. We also find striking differences between firms faced with different types of agency conflicts. Specifically, governance measures such as management compensation, controlling shareholder monitoring and board independence are more effective in lowering the bid-ask spread for state-owned enterprises prone to management entrenchment. In contrast, multiple-layer corporate structures and a higher degree of separation between control and cash flow rights are associated with higher bid-ask spreads in non-state firms characterized by self-serving controlling shareholders. Our study highlights how governance might have different liquidity effects between firms faced with different types of agency conflicts. © 2013 Elsevier Inc.

Publication Title, e.g., Journal

Journal of Accounting and Public Policy

Volume

32

Issue

3

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