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The purpose of this study is to analyze the CEO compensation sensitivity to firm performance, termed as the pay-for-performance sensitivity (PPS) in the Tunisian context and to test the robustness of this relationship when corporate governance (CG) mechanisms are considered.

The consideration of past executive pay as one of the explanatory variables makes this estimation model a dynamic one. Furthermore, to avoid the problem of endogeneity, this study uses the system-GMM estimator developed by Blundell and Bond (1998). For robustness check, this study aims to use a simultaneous equation approach (three-stage least squares [3SLS]) to estimate the link between performance and CEO pay with a set of CG mechanisms to control for possible simultaneous interdependencies.

Using a sample of 336 firm-years from Tunisia over the 2009–2015 periods, this study finds strong evidence that the pay-performance relationship is insignificant and negative, and it becomes more negative or remains insignificant after introducing CG mechanisms consistently with the managerial power approach. The findings are robust to the use of alternative performance measures. This study provides new empirical evidence that CEOs of Tunisian firms abuse extracting rents independently of firm performance.

This study contributes to the unexamined research on PPS in a frontier market. This study also shows the ineffectiveness of the Tunisian CG structure and thus recommends for the legislator to impose a mandatory CG guide.

This study aims to provide empirical evidence on the impact of foreign share ownership on the liquidity of the Tunisian Stock Exchange (TSE).

The authors hypothesize in the first strand that stock liquidity could be positively affected by foreign ownership based on the real friction channel. The authors then hypothesize in the second strand, based on the information friction channel, that foreign ownership's impact on stock liquidity could be insignificant or negative and that foreign investors raise the level of information asymmetry. A sample of 318 firm-year observations from Tunisia over the 2012–2017 period and a random-effects estimation were used. Moreover, using the 2SLS estimator, a robustness check framework was applied in order to address any potential reverse causality concerns.

The authors find strong evidence that higher foreign ownership improves stock liquidity. More specifically, firms with higher foreign ownership engender a lower bid-ask spread, a better stock ability to absorb a large amount of trading volume, and a larger depth. These findings are still valid when reverse causality concerns are addressed through the use of the 2SLS estimator.

The paper contributes to the existing literature by focusing on the ownership–liquidity relationship on a frontier market. It provides further empirical support that higher corporate governance quality reduces the information asymmetry problem and enhances stock market liquidity.