Corporate Governance And Market Liquidity Finance Essay

This paper surveies the ownership – liquidness relation in the context of the Tunisian Stock Exchange. In peculiar, we examine two empirical relationships: The relationship between ownership concentration and stock liquidness and the relationship between the separation of ownership from control and market liquidness.Our empirical findings verify that the construction of ownership remains concentrated in the bulk of the Tunisian houses. We find that stock liquidness decreases significantly with concentrated ownership. Different devices used to derive control and therefore a important separation of ownership from control affect liquidness in different ways. Our consequences indicate that pyramidal constructions have a important negative impact on liquidness for all controlled houses. However, for household houses, nonvoting portions increase liquidness for minority stockholders by cut downing the chance of informed trading. Overall, our survey studies that nonvoting portions may be a liquidness heightening device for household – houses.

Cardinal words: ownership, liquidness, commanding stockholders, pyramidal construction, voting rights, bid – ask spread.


The relationship between market microstructure and corporate finance has received late considerable attending in fiscal literature, concentrating on the job of how corporate administration could be associated with market liquidness. In peculiar, corporate administration, market liquidness and their effects on the house ‘s value are normally examined individually. However the informational and operational features of liquidness have a much influence on stockholder value, particularly when they interfere with corporate administration mechanisms. Prior research shows that high market liquidness consequences in lower cost of capital and hence higher house values. Liquidity by and large refers to the ability to prosecute in quickly merchandising a big figure of securities at a low cost with small impact on market monetary values.

Market microstructure theory predicts that informational benefits are reflected in market liquidness through higher trading costs ; a big fraction of stockholders exploit information that others would non hold when investor involvements are ill protected ; this entree to private information increases the inauspicious choice constituent of spread, a wider command -ask spread and a lower quoted deepness. The focal point of most empirical surveies on the ownership-liquidity relation is on the consequence of ownership construction on market liquidness, while there is a small empirical work casting visible radiation on the consequence of separation of ownership from control on liquidness.

Sing this relation, research workers focus on two hypotheses: the inauspicious choice hypothesis and the trading or free-float hypothesis. The inauspicious choice hypothesis postulates that when informed stockholders possess superior information compared to outside stockholders, information dissymmetry arises, cut downing market liquidness ( e.g. , Grossman and Stiglitz, 1980 ; Glosten and Milgrom, 1985 ; Kyle, 1985 ; Easley and O’Hara, 1987 ) . In pattern, it is hard to sort market participants as informed and which as uninformed. Harmonizing to the Securities and Exchange Commission SEC commanding stockholders at the 10 % threshold are considered as insiders. Institutions, while non holding the same entree to private information as insiders, can make an informational advantage by working economic systems of graduated table in information acquisition and possessing. Following the SEC definition of insiders, this survey focuses on commanding stockholder ownership for the Tunisian houses.

The trading hypothesis, on the other manus, supposes that big bets by blockholders cut down the handiness of drifting portions ; therefore the monitoring function of insiders’blockholders has a high cost in footings of market liquidness. Specifically, when a house ‘s ownership is concentrated, there are fewer trade, therefore the free-float is limited and liquidness is reduced ( Demsetz, 1968 ) . Furthermore, ownership construction may impact liquidness through the production of information. Furthermore, ownership concentration decreases the benefits of supervising the house by stock market participants, thereby cut downing the sum of public information available about the house ( Holmstrom and Tirole, 1993 ) .

Given these two hypotheses, this paper analyses the consequence of ownership construction and corporate administration on market liquidness.Using a sample of Tunisian houses, we examine on the one manus the relation between concentrated ownership and stock liquidness.On the other manus, we investigate the impact of separation between control and ownership on inauspicious choice and hence on liquidness ; specifically, we investigate the impact on liquidness of how the house chooses to heighten control.The two chief ways to accomplish separation of voting rights from hard currency flow rights are pyramidic constructions and different categories of portions that provide different vote rights for given hard currency flow rights.

We think that it would be of great involvement to carry on this survey for many grounds. First it contributes to extent bing empirical work on emerging markets by analyzing a new database given by the instance of the Tunisian Stock Market. This lead us to place if the empirical consequences refering other market clasp for the Tunisian Stock Exchange.Second, the focal point of most empirical surveies on the ownership-liquidity relation provide grounds on quote-driven market. It would be interesting to supply a part to the literature by let go ofing new ultimate ownership informations for a sample of houses listed on pure bureau market such as the Tunisian Stock Market, and documenting the nature of commanding proprietors and the separation of ownership from control. Finally, the findings may be helpful for market participants to understand the influence of trading patterns on stock monetary value and for stock exchange governments to follow optimum regulative policies and take efficient merchandising systems in response to information dissymmetry.

Consistent with the trading hypothesis, we find a positive impact of free float on liquidness. Stockss with a greater divergence between control and ownership, have a positive impact on spreads.However, this impact on spreads of ownership-control divergence depends on the control devices used by the house. Pyramidal constructions are positively related to spreads every bit good as on the inauspicious choice constituent of the bid-ask spread and hence have a negative impact on liquidness. On the contrary, nonvoting portions decrease spreads. In conformity to the inauspicious choice hypothesis, pyramidic structures enhance information dissymmetry constituent of the command -ask spread and lessening liquidness for all pyramiding houses, whereas nonvoting portions prevent insiders to merchandise on their private information, they cut down information dissymmetries and hence the command – ask spread ; this positive consequence is limited to little household -firms.

The balance of the paper returns as follows. In Section 1, we start with the literature reappraisal. In subdivision 2, we describe the institutional and legal environment of the Tunisian houses ‘ ownership, and present the construction of the TSE. In subdivision 3, we describe informations. In subdivision 4, we report liquidity steps and methodological analysis. In subdivision 5, we analyze empirical consequences. Section 6 concludes.

I. Literature reappraisal

Berle and Means ( 1932 ) argue that professional directors are efficaciously in control of widely – held houses at the disbursal of stockholders. However, when one stockholder takes control of direction by keeping a big block of portions, he can work other stockholders ( Shleifer and Vishny ( 1997 ) , La Porta and Al. ( 1998, 1999 and 2000 ) ) . To increase the opportunity of put to deathing his programs, the big stockholder would minimise and detain the revelation of information so that other stockholders can non step in, or must establish their determinations on unequal information. Poor revelation worsens the information dissymmetry job, and the big stockholder may even merchandise on his insider information to pull out the private benefits of control. Keeping other factors constant, these will ensue in a wider command – ask spread and lower stock liquidness.

Prior empirical surveies, have attached great importance to the relation between stock liquidness and the fractional ownership of insiders and establishments. Glosten and Milgrom ( 1985 ) papers that one cause of illiquidity is the presence of in private informed bargainers. Bhide ( 1993 ) further studies that active shareholders who cut down bureau costs by supervising directors may besides cut down stock liquidness by increasing informational dissymmetries. Most of these surveies, lead to equivocal consequences, partially because they do non separate between institutional and insider blockholdings. Sarin, Shastri and Shastri ( 2000 ) study that higher institutional and insider ownership are both associated with wider spreads and smaller quoted deepness. Heflin and Shaw ( 2000 ) happen a positive association between spreads and block ownership ( including insiders and institutional blocks ) .Along a similar vena, Dennis and Weston ( 2001 ) show a negative relation between spread and both insider and institutional ownership, whereas Kini and Mian ( 1995 ) papers no support for a important relationship between spreads and blockhodings. Rubin ( 2007 ) finds a positive relation between spread and institutional blockholdings, whereas spreads is negatively related to both institutional and insiders ‘holding. In Australia, Comerton-Forde and Rydge ( 2006 ) study that insiders ‘holdings greater than ten per centum of issued capital cut down liquidness, whereas insiders ‘ retentions of less than ten percent enhance liquidness. Institutional blocks have no impact on liquidness. For Norway, Naes ( 2005 ) reports a positive relation between spreads and block ownership, but institutional ownership concentration has no consequence on spreads.

To analyze the nature of ultimate controlling proprietors and the agencies used to heighten control, La Porta, Lopez-de-Silanes and Shleifer ( 1999a ) show that ownership and control can be separated through divergence of one-share-one-vote, pyramiding and cross-holdings to the benefit of the big stockholders. Claessens, Djankov, and Lang ( 2000 ) confirm a important separation of ultimate ownership and control, and describe the overpowering control of wealth by a little figure of households. In the same manner, Faccio and Lang ( 2002 ) argue that households are the most marked type of commanding stockholders in Western European states and happen a important concentration of wealth within a little figure of households.

A disagreement between ownership and command implies higher bureau costs, as those in control exploit their superior information. Claessens and Al. ( 2002 ) papers that divergence of control from ownership leads to bureau costs that lessening house value. Furthermore, utilizing a Canadian sample of publically – traded houses, Attig, Fong, Gadhoum and Lang ( 2006 ) study that the divergence between ultimate control and ownership widens the bid-ask spread.Control is frequently enhanced via devices like corporate pyramids, cross – retentions, multiple category portions, etc.A pyramid construction allows the ultimate stockholder to have and to command indirectly some portions of a house, but does non command straight the intermediary houses. Cross-ownership allows separation but increases the trouble to measure the incorporate ownership and control of a company. Both devices allow separation. However, dual-class portions, allows insiders to keep superior vote rights portions, keeping a lower fraction of portions.This implies, that they may non sell portions with inferior or no vote right. As a effect, the chance to merchandise against insiders may be reduced and hence the float will be more of import and liquidness increased ( Becht, 1999 ) .

Ownership construction and market liquidness relationship can be examined with two possible accounts. First the trading hypothesis posits that stock liquidness is increasing in the market capitalisation of a house. Average dealing costs depend on the figure of stockholders take parting in trade.The figure of market participants willing to put in information acquisition in a house is larger, the larger the awaited additions from the trade, which are straight related to the stock ‘s free float.When the ownership construction is concentrated, merely the portions included in the free float are likely to be traded and therefore the free float is a better step of the market size for the house ‘s portion.A big stockholder commanding a listed company takes into history private control benefits and hence trades otherwise than little stockholders. When a house ‘s ownership is concentrated, the handiness of portions is limited, there are fewer stockholders who can take part in the trading of the stock and the frequence of trades is reduced and hence liquidness is decreased.

Second, the inauspicious choice hypothesis supposes that ownership concentration is potentially dearly-won, because blockholders may hold private information about the house value. In response to a higher chance of informed trading, liquidness suppliers may widen spreads. While the focal point of most empirical surveies on the ownership-liquidity relation is on the inauspicious choice hypothesis ( e.g. Kini and Mian, 1995 ; Heflin and Shaw, 2000 ; Sarin, Shastri and Shastri, 2000 ) .There is no consensus in the literature about which entities constitute the informed group of investors. Some surveies focus on insiders, some focal point on establishments, and some focal point on blockholders. In position with the informed trading, big stockholders are more likely to be informed ; their presence should increase the inauspicious choice price reduction associated with the trading of the stock, which implies a decreased liquidness. The ultimate proprietor may follow a hapless revelation policy, to be able to merchandise on his private information. In the presence of big private benefits, outside investors may non purchase the stock, cut downing market liquidness.

Our survey concentrates on the impact of commanding proprietors on market liquidness.We take into history institutional stockholders if they control the house. We suppose that commanding stockholders are informed and hence the spread is larger and deepness is lower reflecting the high chance of informed trading.

Second, we examine the consequence of divergence of ownership from control on liquidness. Third, we investigate how the method stockholders use to divide ownership and control affects liquidness. Pyramids have typically a negative impact on liquidness. On the other manus, nonvoting portions generate a crystalline divergency between cash-flows rights and vote. Nonvoting portions spread is smaller because insiders hold portions with high vote rights.

Our hypotheses are therefore sum up as follow:

H1. Market liquidness is positively related to the float: The liquidness of a closely-held house stock is lower because the float is smaller.

H2. Concentrated ownership is negatively related to market liquidness: The liquidness of a closely-held house is lower because of a higher chance of informed trading.

H3. In the presence of household shareholding, the impact of the separation of control from ownership depends on the device used by the house. Pyramidal construction should cut down liquidness whereas portions with no vote right, which deter informed trade, addition liquidness.

II. Corporate administration features and TSE market construction

II.1. Corporate administration features in Tunisia

Compared with other Anglo-saxon economic systems, ownership construction is extremely concentrated in Tunisia. On mean the five largest stockholders holds more than 80 % of the capital.Several surveies show that merely 8 % of the Tunisian houses are widely held, whereas in European houses this per centum increases to 36.93 % ( Faccio and Lang, 2002 ) . Family control and pyramidal retentions have long predominated the Tunisian corporate sector. Further, this concentration of ownership in Tunisia differs appreciably from that predominating in the US. Heflin and Shaw ( 2000 ) study that the mean entire blockholding is 12.3 % of portions outstanding. In, Dennis and Weston ( 2001 ) insiders ownership is on mean 9.97 % of the US house ‘s stock while establishments own 31.06 % of the house ‘s stock.

Harmonizing to the Tunisian Commercial Companies Code, there are two types of general meetings. Decisions by ordinary meetings, which approve the histories, make up one’s mind bond issue, appoint and dismiss managers, require a bulk of 50 % of voting right to be adopted. Decisions by extraordinary meetings pertain to all determinations amending the charter and issuing portions and necessitate a two – tierces bulk of voting rights. Following many anterior surveies as Claessens and Al ( 2000 ) and Faccio and Lang ( 2002 ) , we use 20 % of the vote rights cut-off to sort houses into two groups widely-held versus closely held.Accordingly we consider houses with more than 20 % of voting rights as closely-held.Furthermore, we take into history pyramidic construction to find ultimate control right. We measure ultimate control and ownership in footings of vote rights and hard currency flow utilizing the weakest nexus along the control concatenation.For illustration, if a house X owns 30 % of the houses A which owns 20 % of the house B, so this house X owns 6 % of the hard currency flow rights of house B and controls 20 % of the house B.

Ultimate ownership can divert from ultimate control through the usage of nonvoting portions which are another common device to heighten control in Tunisia. The house ‘s charter can authorise precedence dividend portion, which provide a higher precedence in dividend distribution to the stockholder, and restrict his vote rights in general stockholders ‘ meetings. Preferred portions are besides portions without voting rights and supply merely a fixed dividend. Voting certification provide other portion ‘s rights. Shares with no voting rights construction has non been taken into history in old surveies analyzing the instance of Tunisia.

II.2. TSE market construction

The Tunisian Stock Exchange is a pure order driven market without market shapers. Orders are submitted by agents on the behalf of investors and executed through an automated trading system, utilizing a computerized limit-order book, known as SUPERCA.

Trading is carried out from 9:00 to 11:00 from Monday to Friday. It starts by a pre-opening session ( from 9:00 a.m. to 10:00 a.m. ) during which investors can put, modify or call off orders but no trades are permitted. A theoretical gap monetary value is displayed in existent clip to demo the market inclination. The TSE operates as uninterrupted market for the more actively traded stocks and a call auction “ repair ” for the less liquid stocks. A call auction determines the gap and shutting monetary value in the uninterrupted market. Orders are executed utilizing clip precedence at a given monetary value and monetary value precedence across monetary values. Investors can take between market and bound orders, so as liquidness is merely provided by bound order bargainers. A bound bargain ( sell ) order specify the upper limit ( minimal ) monetary value at which the investor will accept to interchange. However, a market order is executed instantly against the best quotation mark on the opposite side, but the measure that can non be executed at that monetary value, will stay in the order book as a bound order at the dealing monetary value.

TSE offers significant transparence. The five best command / ask bounds ( monetary value and measure ) in the order book are publically released although the individuality of the agent is non shown. Orders and trades ‘ information are updated and disseminated in a existent clip.However ; the electronic bound order book is to the full seeable to agents and regulative governments.

III. Datas

This survey uses intraday informations for 40 listed houses on the TSE. Our dataset contains a time-stamped record to the nearest second of all minutess and orders submitted to the market from January 2001 to December 2005. The dealing informations include the day of the month and clip of dealing, dealing monetary values and the figure of portions traded. The order informations display the day of the month and clip of order entry and executing, the monetary value, the measure and the best bounds of the order book ( command and ask monetary values, and command and inquire size ) . These informations include every bit good as market capitalisation.

There is no electronic database on Tunisian house ownership, including information on O control rights and corporate administration features. These information were collected manually from the one-year studies of listed houses for three old ages 2001, 2003, 2005.The ownership bets are those available on the 31December of each twelvemonth. Our sample includes all Tunisian houses, for which the one-year studies provide information on the ownership construction of all major stockholders. Our definition of ownership from control relies on hard currency flow and vote rights. Table 1 studies features for 220 firm-observations of our database.

[ Insert Table 1 here ]

These informations studies that Tunisian houses are chiefly closely-held.On norm ; the largest stockholder holds straight 49.56 % of the capital and 51.48 % of the vote rights. The 2nd largest stockholder owns on mean 15.25 % of the capital and 16.42 % of the vote rights. The float, which corresponds to the fraction of listed portion capital that is freely traded on the market, sums on norm to 31.65 % for the entire sample.

We farther identified the ultimate commanding stockholders in the presence of pyramidic construction, for a threshold of 20 % of the vote rights, harmonizing to Faccio and Lang ( 2002 ) .On norm, the largest stockholder has 39.56 % of the capital and 41.34 % of the vote rights.We besides take into history the individuality of the commanding stockholders. We find that 39 % of the companies are controlled by a household, which own on mean 53.44 % of the capital and 55.57 % of the vote right. The Tunisian listed houses are hence mostly controlled by households. Apart from household control, 28 % of commanding stockholders are fiscal establishments and 21 % of listed companies are controlled by the Tunisian province. However, for the entire sample, merely 7 % of the houses are widely-held.

We so look into the devices used by the Tunisian houses to divide ownership and control ( Table 2 ) . Pyramidal constructions are the most frequent method used by 15.55 % of the houses. Cross-holdings are used by 11.11 % of the houses, Priority dividend portions by 4.5 % of the houses, and preferable portions and voting certification by 2.5 % . However 63.48 % of houses do n’t follow any devices and they are in the “ one portion -one ballot ” scene.

Controling stockholders individuality seems to impact how houses guarantee separation between ownership and command rights.Families often prefer pyramiding, the other commanding stockholders ( fiscal establishment, State and another widely held house ) usage typically cross-holding and portions with no vote rights.

[ Insert Table 2 here ]

IV. Liquidity steps and methodological analysis

In this subdivision, we present liquidity steps used for intraday variables and the adoptive methodological analysis.

IV.1. Liquidity steps

Liquid steps used in this survey are divided into trade-based steps and order-based steps.Trade-based steps include the turnover and the figure of trades. Order-based steps include effectual comparative spread and deepness. Depth is measured by the figure of portions to buy or to sell, severally at the quoted command and ask monetary values. The day-to-day mean comparative effectual spread, is calculated utilizing full twenty-four hours informations records. The effectual comparative bid-ask spread takes into history the possibility of a dealing within the spread.The effectual comparative spread is related to the center of the spread:

Effective Relative Spread = , Where

Midpoint =

The variables considered are measured at the terminal of each 15-min interval from the bound order book. We average all liquidness variables over 12 months around the day of the month of ownership construction for each twelvemonth.

IV.2. Methodology

We adopt in our analysis panel informations in order to research ownership-liquidity relationship, utilizing ordinary least square ( OLS ) . We consider the empirical theoretical account describes as follow:

+ ( 1 )

Liquidity ( LIQ ) is the dependent variable represented by either comparative effectual spread or deepness. As independent variables, we use a set of corporate administration variables and a set of control variables. Among the corporate administration variables, we include:

AMAJ is the per centum of equity owned by the chief controlling stockholder.

ASEC is the per centum of capital owned by the 2nd largest stockholder.

SEPAR measures the disagreement between hard currency flow and control rights for the chief stockholders.It is defined as the ratio of voting rights subtraction hard currency flow rights to hard currency flow rights.

CFAM is a dummy variable that takes the value 1 if the commanding stockholder is a household at 20 % threshold, 0 otherwise.

CNFAM is a dummy variable, equal to 1 when the commanding stockholder at 20 % threshold is non a household, 0 otherwise.

PYRM, CROIS, SNVR are silent persons capting the presence of pyramids, cross-holding and portions with no vote rights, equal to 1 if the proviso is present,0 otherwise.

In order to take into consideration the combined consequence of the control variables suggested by old surveies of the determiners of the bid-ask spread, we include:

CAPB is a control variable that measures the size of the house. It is defined as the log of the market capitalisation of the house. It is calculated as the logarithm of the day-to-day market value of the house, averaged over 12 months around the twelvemonth terminal.

VOLT is a control variable measurement volatility. It is defined as the norm of the day-to-day standard divergence of rate of return over one twelvemonth round the day of the month of ownership construction.

Year is a dummy variable that takes the value 1 if the liquidness variables ( spread, deepness ) refer to the twelvemonth 2003 or 2005, 0 otherwise.

V. Empirical consequences

The consequence of commanding stockholders on liquidness

In this subdivision, we examine the consequence of commanding stockholders on stock liquidness. We expect liquidity steps to be higher for widely-held houses than for houses with commanding stockholders. Table 3 studies liquidness steps and market features by subsamples of family-controlled houses, non-family-controlled houses and widely-held houses. The last columns provide parametric and non parametric trials to compare family-controlled houses, non-family-controlled houses and widely-held houses.

[ Insert Table 3 here ]

Our consequences confirm that widely-held houses are the largest houses in the market value, are involved in the most minutess, are more volatile and are more liquid than family-controlled houses. The mean market capitalisation of widely-held houses is 2622 MD, compared to 1580 MD ( 1842 MD ) for family-firms ( non-family-firms ) .Their turnover and their figure of minutess are significantly larger than the other controlled houses 1s, which are larger than the turnover and the figure of dealing of family-controlled houses.The mean comparative spread is 5.83 % for household houses, 5.35 % for non-family controlled houses and 5.22 % for widely-held houses. The mean deepness is 125 portions for family-firms, 163.67 portions for non-family controlled houses and 174.25 portions for widely-held houses. The dislocation of the sample indicates that the volatility and the size of listed companies on the same market section show merely limited differences harmonizing to the being of a controlling stockholder. Indeed, family-controlled houses are still characterized by wider spreads and lower deepness. By and large, the descriptive statistics show that household houses are the smaller and less liquid companies. Furthermore widely-held houses are the largest and the most liquid.

We use farther several arrested development theoretical accounts to complement the univariate analysis utilizing ordinary least square ( OLS ) .We usage either the comparative effectual spread or the deepness as the dependant variable to explicate liquidness. Table 4 presents the appraisal consequences. Regardless of steps, liquidness additions with market capitalisation and decreases with volatility. This consequence confirm the old findings on the determiners of the bid-ask spread.

[ Insert Table 4 here ]

We regress in the first column, the spread on the free float, and we find a negative relationship ( -0.0009 ) .This consequence is consistent with the trading hypothesis. Information production and trades frequence lessening when the market size of the house ‘s portions is reduced and hence liquidness is decreased. we include in the 2nd column two silent persons for controlled houses ( CFAM, CNFAM ) to prove more straight the function of commanding stockholders on liquidness.Spreads of family-controlled houses ( other controlled houses ) portions are 13.05 % ( 14 % ) larger on norm than widely-held portions spreads.We so include the per centum of capital owned by the first and the 2nd stockholders.We happen that the per centum of the capital held by both the controlling and the 2nd stockholder, increases the spread ( 0.0010 ) and depth lessenings ( -2.6017 ) corroborating the free-float hypothesis and besides the inauspicious choice hypothesis if we consider commanding stockholders as informed bargainers.

We besides examine the impact of separation of the ultimate ownership and control on liquidness. We find that the disagreement between hard currency flow rights and voting rights have a positive impact on spread ( 0.0200 ) but the impact on deepness is negative and undistinguished. This consequence can be explained for several grounds. First, when minority stockholders suspect private benefits to go a big portion of the house ‘s value, they may abdicate to purchase the portions and prefer selling them. Second, the commanding stockholder may take a hapless revelation policy, to forestall outside investors to merchandise on his private information.

Our consequences remain robust when we consider subsamples by control type ( household control, non-family control ) .The presence of a controlling stockholder at the 20 % threshold increases the bid-ask spread, for all controlled houses. The separation between ownership and control reduces liquidness, whether he is a household house or non. One account is that in the being of a big divergence between ownership and control, most institutional investors do non put.Therefore, minutess are chiefly initiated by single investors with smaller order size. Indeed, as a fraction of these investors are informed, liquidness lessenings. We therefore find grounds for the inauspicious choice hypothesis which suppose that liquidness is reduced in the presence of commanding stockholders.

B. Market liquidness and heightening control devices

The chief devices used by Tunisian houses are pyramids, cross-holding and non-voting portions. We examine how these mechanisms affect liquidness. Table 5 ( panel A ) presents the features of firm-year observations utilizing pyramidic constructions by control type ( household control / non-family control ) .We find that pyramids have non a important impact on non-family controlled houses features.On the contrary, for family-firms, the free-float is significantly higher ( 35.41 % on norm, compared to 22.55 % for non-family controlled houses ) .They are more liquid than other controlled houses. The mean comparative spread is 1.78 % for household houses with pyramids ( 1.96 % for other houses without pyramids ) . The average deepness is 140 portions ( 125 portions for other controlled houses ) . This determination confirms that households want to maintain the control of their houses anyhow, and the usage of pyramids allow them to heighten control for a little hard currency flow interest.

[ Insert Table 5 here ]

Table 5, Panel B compares controlled houses utilizing cross-holdings to command houses without cross-holdings. Cross-holdings do non impact significantly the features of non-family controlled houses. However, family-firms controlled by cross-holdings are larger, have a higher turnover and a larger free-float.They are more liquid: the mean spread is 1.64 % for cross-holding compared to 1.95 % for other houses and the average deepness is 149.5 portions compared to 97 portions for houses without cross-holding.

We so run arrested developments, to analyze the impact of the different heightening control means on market liquidness. Table 6 displays the arrested development consequences for the entire sample.

[ Insert Table 6 here ]

In the first set of arrested developments, we examine the impact of direct ownership variables:

( AMAJ, ASEC, SEPAR ) severally the per centum of capital owned by the chief and the 2nd stockholders, divergence between hard currency flow rights and control rights.The consequence of the two direct ownership variables ( AMAJ, ASEC ) is the same as those of the ultimate ownership variables in Table 4. On the contrary, the direct ownership/control divergence has a important negative impact on spread ; nevertheless, in Table 4, the ultimate exhibit a positive impact. Nonvoting portions are the chief beginning of direct divergence. Ultimate divergence is the effect of both pyramidic construction and cross-holdings. This determination confirms that the different agencies of heightening control have different impact on liquidness.

To analyze this hypothesis, we include in the following arrested developments silent persons ( PYRM, CROIS, SNVR ) equal to one if the house has used one of the following control heightening agencies: pyramidal construction, nonvoting portions and cross-holding.The arrested development consequences study that pyramids have a positive impact on spreads, nevertheless nonvoting portions lead to increase spreads. These consequences confirm that family-firms sooner use nonvoting portions, and other commanding stockholders use often pyramids and cross-holdings.To verify these findings, we run arrested developments for subsamples by control type ( table 7 ) , to look into whether this consequence is invariant whatever the individuality of the commanding stockholders.

[ Insert Table 7 here ]

For family-firms, we find that direct divergence between ownership and control is negatively related to spreads. However, pyramidic constructions increase spreads and nonvoting portions decrease spreads. Whereas, for non-family controlled houses, neither the impact of direct ownership/control divergence nor the nonvoting rights dummy impact is important. Indeed, spreads addition with pyramidic construction.These consequences confirm that non-voting portions may hold a positive consequence for family-controlled houses. In fact, the free-float is greater for family-firms with non-voting portions. Furthermore, non-voting portions allow household stockholders to command their houses by keeping a lower interest of portions ; as non-voting portions supply a higher precedence in dividend distribution to the stockholder, and restrict his vote rights.

C. Adverse choice spread constituent and ownership construction

We further analyze the consequence of ownership construction on the adverse-selection constituent of spread. Particularly, we check if there is a fluctuation in the inauspicious choice spread constituent in the presence of a big stockholder or when the divergence between ownership and control is higher.

To mensurate the inauspicious choice spread constituent, we use the Huang and Stoll ( 1997 ) theoretical account.

( 2 )

We denote:

PA : the monetary value of the dealing at clip T.

Q: the buy-sell trade index variable for the dealing monetary value, P. It equals +1 if the dealing is purchaser initiated and – 1 if the dealing is seller initiated.As the TSE is an electronic order driven market, the way of the minutess can be identified in a precise manner, by comparing the monetary value and the instantly predating spread.

I± and I? : can non be estimated individually, and stand for the inauspicious choice constituent and the cost of stock list constituent of the spread.

Second: the traded spread is estimated with the Huang and Stoll ‘s theoretical account.

The inauspicious choice constituent of the spread is estimated as follow:

Adverse choice constituent =

We average the inauspicious choice constituent of spread for each portion and each of our three periods ( 2001, 2003, 2005 ) . These variables are estimated utilizing GMM method. Table 8 compares the features of firm-years for which the adverse spread constituent are calculated and the other observations.

[ Insert Table 8 here ]

We find that the houses for which the inauspicious choice constituent of the spread is calculated are characterized by a larger mean market capitalisation ( 1262 MD compared to 76 MD for the other houses ) . The free float is significantly greater ( 32.85 % compared to 17.75 % ) , the chief stockholder holds 40.76 % of the capital ( 44.07 % for other houses ) , and the mean spread is 1.08 % compared to 1.20 % for the other houses. In general, houses for which the inauspicious constituent of the spread is calculated are larger and more liquid than the other houses.

We following tally arrested developments to analyze the relation between the inauspicious choice constituent of spread and ownership construction.More exactly we test the hypothesis that information dissymmetry increases with both big stockholders and ownership/control divergence.

[ Insert Table 9 here ]

Our consequences confirm that the direct and ultimate per centum of capital held by the chief and the 2nd stockholders are associated with a higher inauspicious choice constituent of the spread. This determination is consistent with the fact that commanding stockholders are typically informed bargainers.Furthermore the divergence between ownership and control increases the information dissymmetry. In peculiar, by following a hapless revelation policy, the commanding stockholder infusion private benefits from his private information and therefore information dissymmetry arises.However the cross-holding and nonvoting portions silent persons have an undistinguished impact on the inauspicious choice constituent of the spread.

VI. Decision

This paper provides an empirical scrutiny of the ownership-liquidity relation in the Tunisian stock exchange. The major aim of this survey is to look into the impact of ownership concentration and the separation of ownership from control on market liquidness. To make this nonsubjective, we have used a sample of 40 houses, choosing the actively traded stocks on the TSE over the period 2001-2005. Liquidity is represented by either effectual comparative spread or deepness, measured at the terminal of each 15-min interval from the bound order book. Our definition of ownership from control relies on hard currency flow and vote rights.

Our consequences indicate that Tunisian companies are characterized by concentrated ownership. More exactly, we find that liquidness is significantly reduced for closely-held houses. This consequence is robust when we consider the direct/ultimate ownership of the commanding stockholder and taking into history the commanding stockholder individuality. For all controlled houses, the separation of ownership from ultimate control increases the spread and its inauspicious choice, but the consequence is more marked for family-firms.

The arrested development consequences indicate that pyramidic constructions and cross-holding have a positive impact on spreads for all controlled houses. Whereas, nonvoting portions permit a greater float for family-firms that want to maintain control and deter informed stockholders to merchandise on private information. Overall, our survey confirms that nonvoting portions heighten little family-firms control, deter information dissymmetry and therefore may better stock liquidness for minority stockholders.

Finally, these consequences suggest that houses may extenuate information-based trading and heighten stock market liquidness by following corporate administration criterions that prevent insider trading. The consequences raise inquiries for future research. First, recent handiness of intraday informations from the TSE allows for a battalion of new research inquiries and can intensify the apprehension of the order book every bit good as enhance the clearcutness of practical applications. Furthermore, it would be interesting to extent this analysis and research other emerging stock markets.Second, the non handiness of electronic database on Tunisian house ownership, including relevant information on vote rights and corporate administration features explains the rareness of surveies on administration properties.