A Does Corporate Governance and Corporate Social Responsibility Impact the Market Liquidity?

Abstract

The study aims to investigate the impact of corporate governance and corporate social responsibility on firm market liquidity. Existing literature and industry evidence suggest that, in the context of Pakistan as a developing market, firms generally do not fully adhere to effective corporate governance mechanisms and corporate social responsibility practices. This lack of adherence undermines investor confidence and, along with other factors, contributes to reduced market liquidity. The study utilizes panel data from 200 non-financial firms listed on the Pakistan Stock Exchange (PSX) over a ten-year period from 2013 to 2022. The findings indicate that managerial ownership, institutional ownership, and the presence of an audit committee have a positive influence on market liquidity, as higher ownership stakes by managers and institutions enhance trading activity. In contrast, family ownership negatively affects market liquidity by reducing trading volume. Furthermore, the results reveal a positive relationship between corporate social responsibility and market liquidity. These findings offer valuable implications for investors, policymakers, and corporate governance practitioners aiming to enhance market efficiency, transparency, and the sustainability of financial markets.