Board Reforms, Stock Liquidity, and Stock Market Development

This paper studies the effect of board reforms on stock liquidity using data from 37 countries. We document that board reforms significantly increase stock liquidity—effective spread on average decreases by 12.7% after a board reform. As information asymmetry is a key determinant of stock liquidity, we further find that board reforms decrease information asymmetry, and the treatment effect of board reforms on stock liquidity is stronger for firms with ex-ante higher information asymmetry. Finally, board reforms facilitate healthy stock market development, with the effect being stronger for countries with lower aggregate stock market liquidity prior to the reforms