The Impact of CEO Expertise and Compensation on Stock Liquidity: A Moderating Role of Institutional Ownership

Abstract

This research examines how the expertise of CEO, specifically in the areas of finance, international exposure, and business—and their remuneration influence stock market liquidity in non-financial companies listed on Pakistan’s stock exchange, while considering the moderating role of institutional ownership. Utilizing a panel dataset comprising 61 firms from the KSE-100 index over the period 2014 to 2023, stock liquidity is evaluated using the Bid-Ask Spread and the Amihud Illiquidity Ratio. The empirical findings reveal that financial expertise of the CEO does not independently impact stock liquidity; however, it contributes to improved liquidity when accompanied by higher levels of institutional ownership. In contrast, international expertise of the CEO is associated with a decline in liquidity, whereas business expertise demonstrates a limited positive effect. Additionally, compensation awarded to the CEO does not exhibit a direct influence on liquidity, and institutional ownership frequently exacerbates illiquidity. These outcomes question the conventional view that executive characteristics inherently enhance liquidity, underscoring the importance of corporate governance reforms and suggesting the need for further empirical investigation.

Keywords: CEO Attributes, Stock Liquidity, Institutional Ownership, Corporate Governance, Emerging Market