Determinants of Market Liquidity of Shares Traded on the BM&FBOVESPA

Abstract

This article aims to identify determinants of liquidity of shares traded on the BM&FBOVESPA. It was considered the influence of aspects such as the level of governance, listing on US stock markets and specific business characteristics. The concept of liquidity adopted can be simplified as the ease with which an asset is traded by its market price. The greater the difference between the price offered and the demanded on a security (bid-ask spread), the greater its illiquidity. The methodology consisted of regressions using panel data for a sample of common shares and preferred shares of non-financial companies listed on the BM&FBOVESPA, between 1995 and 2010. The results revealed that liquidity increases with the adoption of ADRs; governance; financial slack and return on sales. Moreover, the less liquid stocks are the ones that pay more dividends.

Keywords

• stock liquidity
• corporate governance
• adr
• leverage
• dividends