Corporate Governance and Market Microstructure: Evidence on Institutional Investors in the Tunisian Stock Exchange

This paper investigates the relationship between market microstructure and corporate governance in the Tunisian Stock Market. We examine in particular, the relationship between stock liquidity and institutional ownership by the type of institutions (e.g. banks, insurance companies, investment companies, pension funds). We consider eight liquidity measures: absolute quoted bid-ask spread, relative quoted bid-ask spread, absolute effective bid-ask spread, relative effective bid-ask spread, depth, lambda, turnover ratio and Amihud (2002) illiquidity ratio. For our sample, institutional ownership was found to have a significant negative impact on the stock liquidity as measured by Amihud (2002) illiquidity ratio. Our findings support the contention that the relationship between stock liquidity and institutional ownership varies significantly across institution. The ownership of insurance companies increases the bid-ask spreads. The investment companies have a significant and negative effect on the liquidity more than the other types of institutions.