Executives' Horizon, Internal Governance and Stock Market Liquidity
51 Pages Posted: 19 Sep 2011 Last revised: 23 Jun 2016
Date Written: June 22, 2016
In this article, we examine whether internal governance, the process through which subordinate managers effectively monitor the chief executive officer (CEO), can improve a firm’s liquidity. Using the difference in horizons between a CEO and his immediate subordinates to measure internal governance, we show that firms with better internal governance have lower information asymmetry and higher liquidity. Further, we show that internal governance is effective in enhancing liquidity for firms with CEOs close to retirement, firms that require higher firm-specific skills, and firms with experienced subordinate managers. Our results are robust to inclusion of conventional governance measures, alternative model specifications, and different measures of internal governance and liquidity.
Keywords: executives’ horizon, internal governance, corporate governance, subordinate managers, liquidity
JEL Classification: G30, G34, G39
Suggested Citation: Suggested Citation