Corporate Governance, Legal System, and Stock Market Liquidity: Evidence Around the World* Kee H. Chung School of Management, State University of New York at Buffalo and Chung-Ang University Joon-Seok Kim Korea Capital Market Institute Kwangwoo Park** College of Business, Korea Advanced Institute of Science and Technology Taeyoon Sung School of Economics, Yonsei University Received 20 August 2012; Accepted 4 October 2012 Abstract This study shows that firms in the common law countries tend to have better corporate governance structures and greater stock market liquidity than firms in civil law countries. Stock market liquidity is greater for firms with a superior governance structure regardless of the legal origins of the relevant country (i.e., in both common and civil law coun- tries), than for firms with an inferior governance structure. Our findings suggest that legal and regulatory environments for protecting shareholders at the country level and good corporate governance at the firm level are complementary because strong shareholder pro- tection rights reinforce the effectiveness of corporate governance in improving stock mar- ket liquidity. Keywords Corporate governance; Shareholder protection; Price impact; Market liquidity; Legal origins JEL Classification: G10, G32, G34 *Acknowledgements: The authors thank Jarrad Harford, Jang-Chul Kim, and Anh Le for use- ful comments. Hakkon Kim provided excellent research assistance. An earlier version of this paper received the Maeil Business Newspaper Best Paper Award at the 2010 Allied Annual Meetings of the Business Administration Academic Associations in Korea. This work was supported by the Korea Research Foundation Grant (KRF-2009-013-B00037). **Corresponding author: Kwangwoo Park, College of Business, Korea Advanced Institute of Science and Technology (KAIST), 85 Hoegiro, Seoul 130-722, Korea. Tel: +822-958-3540, Fax: +822-958-3604, email: kpark3@kaist.edu. Asia-Pacific Journal of Financial Studies (2012) 41, 686–703 doi:10.1111/ajfs.12002 686 © 2012 Korean Securities Association