Authors: Omar Farooq; Fatima Zahra Bouaich
Addresses: Department of Business and Management, Aalborg University, Fibigerstraede 4, 9220 Aalborg, Denmark. ' Al Akhawayn University, P.O. Box 104, Hassan II Avenue, 53000 Ifrane, Morocco
Abstract: How can individual investors infer value relevant information from publicly available data in information scarce emerging markets? Using a large data set from the MENA region (Morocco, Egypt, Saudi Arabia, United Arab Emirates, Jordan, Kuwait and Bahrain), we document a significantly positive relationship between liquidity and firm performance. We argue that higher level of information asymmetries in the MENA region exposes stock market participants to excessive risk, and therefore any mechanism that can provide them with opportunity to lower this risk (by exiting the stock) is valuable. Our results also show that this relationship is stronger in the civil law countries than in the common law countries. Civil law countries have weaker investor protection mechanisms, thereby exposing investors to more risk. As a consequence, liquidity is valued more in the civil law countries relative to the common law countries.
Keywords: firm performance; liquidity; value information; emerging markets; MENA region; Middle East; North Africa; information scarcity; stock markets; investment risks; civil law; common law.
International Journal of Business Governance and Ethics, 2012 Vol.7 No.2, pp.139 - 152
Received: 08 May 2021
Accepted: 12 May 2021
Published online: 24 Jun 2012 *