1. Corporate governance and the stock liquidity in Australia
Pitch paper by
Searat Ali
SIRCA Pitching Research Symposium
27 February 2015
Item A

2. RQ, Key papers & Motivation
Preliminaries
RQ, Key papers & Motivation
Stock Liquidity
Determinants
Corporate governance
Studies outside Australia
Lacks generalizability
Stock characteristics
Market characteristics
Consequences
Stock returns
Do better governed firms have greater stock liquidity in Australia?
Basic research question
Item B
Item C
Item D
(See Chai et al., 2010)
1-Trading system (Pure order driven)
2-Intensive disclosure (Signal G)
3-Weak ‘market for control’
4-High ownership concentration
5-Voluntary CG environment (if not, why not)
(e.g., Chung et al., 2010)

3. Three IDioTs IDEA Corporate governance
Information disclosure
Information asymmetry
Stock liquidity
Item E
Core Idea: CGQ is assumed to affect stock liquidity through the channel of information disclosure and quality. Specifically, strong CGQ improves operational and financial transparency of a firm and mitigates information asymmetry between insiders (e.g., managers) and outsiders (e.g., investors), as well as among outsiders, which ultimately improves stock liquidity. Central Hypothesis: CGQ improves stock liquidity in Australia
Beekes et al., 2014)

4. Three IDioTs
DATA
Item F 1
Sampling Strategy: Large cap Australian non-financial firms from Why? 2
Sample size: 1600 firm-year observations, 450 unique firms. 3
Data sources: CG (Horwath & SIRCA), Stock liquidity (SIRCA), firm characteristics (Morningstar). Data availability: Yes. 4
Data collection: Missing data, tracking name changes, dealing with outliers. 5
Variation in the test variable: CG does not change much over time. Support from prior literature. 6
External Validity: 1) Generalizability to mid cap &small firms 2) Generalizability to post GFC period. 7
Construct validity: Horwath report pays attention to domestic and worldwide standards. Stock liquidity proxies are chosen with literature support.

5. Three IDioTs TOOLS Empirical framework Pooled OLS Robust SE
Year effects
Industry effects
Alternative methods
GLS Random effects
Between estimators
Endogeneity bias
Lagged variable
2SLS
GMM
Additional analysis
Survivorship bias & GFC
Omitted variables
Sub indices & Additional data
Software: Stata 13
Item G

6. Two
One
What’s New? The relationship of CGQ with stock liquidity has not been tested in Australia. To capture CGQ, I am using unique dataset of Horwath report + developing a similar index beyond The prior studies using Horwath report are either cross-sectional or linked CG to firm activities other than stock liquidity.
Item H
Contribution
Investigating the relationship between CGQ and stock liquidity in the context of unique corporate environment of Australia.
Item J X
Corporate Governance
-Horwath Corporate governance index-
Australia
-Order driven
- Disclosure requirements
-Market for control
-Voluntary CG
-Ownership Concentration
Stock Liquidity
-High and low frequency-
So What?
Given CGQ is instrumental to liquidity in Australia; investors, firms & regulators may wish to monitor CG mechanisms more closely so as to devise a sound trading strategies, corporate environment & trading regulations respectively.
Item I
Fig 1: Mickey Mouse/Venn diagram

7. Research Feedback
Q & A