The Impact of Corporate Governance on the Bid -Ask Spread: Evidence from an Emerging Market

This paper examines the impact of corporate governance on the bid-ask spread of stocks listed on the Tehran Stock Exchange. We measure corporate governance by ownership structure and the board of directors. We find that lower managerial ownership is associated with decreased bid-ask spread. However, Blockholder ownership and government ownership are not related to bid-ask spread. An increase in outside directors reduces bid-ask spread. Our results are consistent with the hypothesis that firms with higher levels of corporate governance have lower information asymmetry that it would result in smaller adverse selection component of the bid-ask spread.