Title: Corporate governance and equity liquidity: analysis of S&P transparency and disclosure rankings
Authors: Chen, Wei-Peng
Chung, Huimin
Lee, Chengfew
Liao, Wei-Li
Department of Management Science
Keywords: corporate governance;transparency and disclosure;asymmetric information costs;liquidity
Issue Date: 1-Jul-2007
Abstract: This paper sets out to investigate the effects of disclosure, and other corporate governance mechanisms, on equity liquidity, arguing that those companies adopting poor information transparency and disclosure practices will experience serious information asymmetry. Since poor corporate governance leads to greater information asymmetry, liquidity providers will incur relatively higher adverse information risks and will therefore offer higher information asymmetry components in their effective bid-ask spreads. The Transparency and Disclosure (T&D) rankings of the individual stocks on the S&P 500 index are employed to examine whether firms with greater T&D rankings have lower information asymmetry components and lower stock spreads. Our results reveal that the economic costs of equity liquidity, i.e. the effective spread and the quoted half-spread, are greater for those companies with poor information transparency and disclosure practices.
URI: http://dx.doi.org/10.1111/j.1467-8683.2007.00594.x
ISSN: 0964-8410
DOI: 10.1111/j.1467-8683.2007.00594.x
Volume: 15
Issue: 4
Begin Page: 644
End Page: 660
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