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This paper tests the causal relationship between bid ask spread and cash holding in the short and long run. It uses different proxy of corporate cash holding and test three proxies of a bid-ask spread. It also provides comprehensive and robust evidence for the causal relationship between cash holding and stock liquidity in an emergent market.

This study is based on a sample covering all financial and industrial firms in Tunisia’s stock market from 2008 to 2020. It uses a panel ARDL data approach to test the bi-directional relationship between cash holding and stock liquidity. This paper conducts rigorous statistical analysis of the collected data to test the hypothesized relationship between cash holding and bid-ask spread. This can involve running regression models, performing statistical tests, and analyzing the significance of the estimated coefficients.

Overall, paper’s findings provide empirical evidence supporting the bidirectional causal relationship between cash holding and bid-ask spread. The results highlight the importance of cash holding in determining stock liquidity and suggest that firms with higher cash holdings may face liquidity challenges. These findings have implications for corporate governance and can guide firms and regulators in improving stock liquidity and designing appropriate policies and recommendations.

Overall, the practical implications of this paper suggest that firms can enhance their stock liquidity by improving governance mechanisms and optimizing cash management strategies. Regulators can play a crucial role in creating a conducive market environment, and investors can take into account the relationship between cash holding and stock liquidity when making investment decisions.

We present empirical evidence of the relation causality between stock liquidity and cash holding. Our research is the first to test the bidirectional relationship between bid ask spread and cash holding in the short and long run. Overall, the originality of this paper lies in its exploration of the causal relationship between cash holding and bid-ask spread, the use of multiple proxies for stock liquidity, the examination of an emerging market context, the comparative analysis across sectors, and the practical implications for firms and regulators. These contributions add to the existing body of knowledge and provide new insights into the dynamics of cash holding and stock liquidity.

This study analyzes the relationship between governance and stock liquidity. It uses different variables of corporate board characteristics and test three proxies of a bid-ask spread. It also provides comprehensive and robust evidence for the association between the corporate board and stock liquidity in the pure order-driven Tunisian market.

This study is based on a sample covering all financial firms in Tunisia (banks, insurances and leasing companies) from 2008 to 2019. It employs a panel data approach.

The author finds a negative relationship between board sizes, financial institutional members in corporate board and bid-ask spread (absolute, relative and effective spread). The author suggests that better-managed firms have greatly improved their stock liquidity and lower trading cost. The empirical results reveal that better corporate governance firms improve stock liquidity since it is associated with higher information disclosure.

This research encourages Tunisian firms to develop their governance mechanisms and restructure their board organization to improve stock liquidity. It can support the regulators to simultaneously design appropriate governance recommendations, disclosure policies and trading regulations.

The author presents empirical evidence of the role of corporate board on the bid-ask spread in an emerging market. The research is the first to analyze the corporate board characteristics using seven variables representatives of the board of directors and without using the governance index.