Corporate Governance and Liquidity Creation: Evidence from Iranian Banks

This paper examines the impact of internal bank governance on bank liquidity creation in Iran during 2010-2017. We analyze whether banks with larger size and liquidity levels creates higher levels of liquidity. The results using panel GMM method show that corporate governance has a positive effect on liquidity creation; of course, it is not significant. Also, this effect is not affecting by bank size level, but a bank with higher liquidity levels have a higher elasticity to the governance change. Moreover, banks with higher financial stability have higher liquidity creation. Furthermore, the equity ratio index harms liquidity creation, which means “the fragility hypothesis” is confirmed within Iranian banks.