The Linkage of Liquidity, Corporate Governance, and Firm Value: Evidence from Russia

This paper examines the channel relationship of liquidity, corporate governance, and firm valuation for Russian firms over the period of 2005 to 2007. We test the hypotheses that liquidity improves corporate governance, and better corporate governance enhances firm value. We form the system of equations of liquidity measures (share turnover, market value turnover and the Amihud liquidity ratio), the transparency and disclosure (T&D) scores, and firm valuation (market value equity). The results show that liquidity has a significant positive effect on corporate governance for Russian firms, which consequently increases firm valuation. The empirical evidence is consistent with that in previous studies of other countries.