THE EFFECT OF CORPORATE GOVERNANCE ON STOCK LIQUIDITY IN BANKING SUB-SECTOR COMPANIES: EVIDENCE FROM INDONESIAN STOCK EXCHANGE

The implementation of good corporate governance is crucial in the banking industry because bank has its function as intermediary, making them as a high level risk industry. Moreover, according to the data, the poor corporate governance is one of the main causes of the 1997-1998 Asian Financial Crisis, including Indonesia. This fact has made the quality of corporate governance as an important thing that investors consider when investing. Liquidity is an important factor for both investor and firm; if an investor owning an illiquid stock it will be harder for them to sell and if a firm has an illiquid stock it will make investing to them becomes less attractive. This study explores the effect of corporate governance on stock liquidity in Banks. The quality of corporate governance is scored using 21 indicators from OJK regulation, for liquidity Amihud illiquidity estimate and stock turnover are used as proxies. Variable of size, leverage, return volatility, and growth are used control variable. By using a sample of 26 banks from 2012 to 2016, we find that Indonesian Banks already has good corporate governance and our multiple regression analysis results showed that there is a significant relationship between corporate governance and stock liquidity, suggesting that better governed firms has greatly improved stock liquidity. Furthermore we find that the quality of board of commissioner greatly impact stock liquidity.