Board Effectiveness and Firm Value: A Mediating Role of Stock Liquidity

Ramiz ur Rehman, Muhammad Ishfaq Ahmad, Ender Demir, Mudassar Hasan

Research output: Contribution to conferencePaperpeer-review


The study aims to analyze the influence of the effective board on firm value in the context of a developing country by examining whether stock liquidity mediates this relationship. We developed an effective board index to test the hypothesized model using board size, board independence, board diversity, and CEO duality. Following Amihud et al. (2002) and Corwin and Schultz (2012), stock liquidity is a mediating variable. By performing fixed effect estimation, we find that an effective board index reduces the agency cost, increasing the firm value. Further, an effective-board index gives positive signals to the investors regarding reduced information asymmetry, therefore increasing stock liquidity. The analysis also reveals that the stock liquidity partially mediates the link between the effective board index and firm value. Only Amihud illiquidity mediates the connection between the effective board and strong value, which shows that the estimation technique of stock liquidity matters. This study is the first attempt to examine stock liquidity's mediating role in the relationship between the effective-board index and firm value in an emerging market context.
Original languageEnglish
Publication statusAccepted/In press - 1 Apr 2021
Event36th Eurasian Business and Economic Society Conference -
Duration: 1 Jul 20213 Jul 2021


Conference36th Eurasian Business and Economic Society Conference


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