Board Interlocks and Stock Liquidity: New Evidence from an Emerging Market

Abstract

This study examines the implications of board interlocks on stock liquidity using a sample of listed Brazilian firms. The instrumental variable two-stage least squares estimation is used to minimize endogeneity concerns. This study provides evidence that board interlocks are positively related to stock liquidity. Our cross-sectional study findings reveal that the impact of board interlocks on stock liquidity is more pronounced for firms with high uncertainty, in competitive industries, and with poor governance. Our findings suggest that board interlocks aid businesses in accessing external capital from potential investors.

Keywords: Board interlocks, Brazil, information asymmetry, signaling theory, stock liquidity

JEL Classification: D85, G10, G14, L14