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The political institutional and firm governance determinants of liquidity: Evidence from North Africa and the Arab Spring

The political institutional and firm governance determinants of liquidity: Evidence from North Africa and the Arab Spring
The political institutional and firm governance determinants of liquidity: Evidence from North Africa and the Arab Spring

This study undertakes a unique comparison into the relative efficacy of four well established liquidity measures, namely turnover, proportion of daily zero returns, Amihud (2002) and Liu (2006), in explaining the bid-ask spread plus brokerage costs when powerful and common firm governance mechanisms are taken into account as controls. These are representative of ownership of listed firms by state, long term foreign partners, entrepreneurial founders, single family entities, extended family groups and business networks, domestic and foreign venture capitalists. An additional control for firms within business network controlled by former Tunisian premier, Ben Ali, and Morocco's royal family is also included. Using a unique sample of all listed firms across the equity markets of Egypt, Morocco, Tunisia and Algeria I find evidence of equity capital rationing during the Arab Spring period of political upheaval. Less well regulated SME markets such as Morocco's marche croissance have liquidity-based transactions costs attributable to Arab Spring four times those of the marche principal while those in Egypt's Nilex are twenty times those of the prestigious EGX30 index. Finally the greatest changes in political risks associated with aggregate liquidity across the Arab Spring are democratic accountability, military in politics, and law and order.

Africa, Emerging financial markets, Liquidity, Liquidity determinants
1042-4431
127-158
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2

Hearn, Bruce (2014) The political institutional and firm governance determinants of liquidity: Evidence from North Africa and the Arab Spring. Journal of International Financial Markets, Institutions and Money, 31 (1), 127-158. (doi:10.1016/j.intfin.2014.03.006).

Record type: Article

Abstract

This study undertakes a unique comparison into the relative efficacy of four well established liquidity measures, namely turnover, proportion of daily zero returns, Amihud (2002) and Liu (2006), in explaining the bid-ask spread plus brokerage costs when powerful and common firm governance mechanisms are taken into account as controls. These are representative of ownership of listed firms by state, long term foreign partners, entrepreneurial founders, single family entities, extended family groups and business networks, domestic and foreign venture capitalists. An additional control for firms within business network controlled by former Tunisian premier, Ben Ali, and Morocco's royal family is also included. Using a unique sample of all listed firms across the equity markets of Egypt, Morocco, Tunisia and Algeria I find evidence of equity capital rationing during the Arab Spring period of political upheaval. Less well regulated SME markets such as Morocco's marche croissance have liquidity-based transactions costs attributable to Arab Spring four times those of the marche principal while those in Egypt's Nilex are twenty times those of the prestigious EGX30 index. Finally the greatest changes in political risks associated with aggregate liquidity across the Arab Spring are democratic accountability, military in politics, and law and order.

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More information

Accepted/In Press date: 23 March 2014
e-pub ahead of print date: 3 April 2014
Published date: July 2014
Keywords: Africa, Emerging financial markets, Liquidity, Liquidity determinants

Identifiers

Local EPrints ID: 423178
URI: http://eprints.soton.ac.uk/id/eprint/423178
ISSN: 1042-4431
PURE UUID: a1c2ac29-4017-4176-ba08-d53c50633ff9
ORCID for Bruce Hearn: ORCID iD orcid.org/0000-0001-9767-0198

Catalogue record

Date deposited: 19 Sep 2018 16:30
Last modified: 10 Dec 2019 01:23

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Author: Bruce Hearn ORCID iD

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