Do firms' earnings management practices affect their equity liquidity?
AbstractThis study investigates the relationship between earnings management and equity liquidity, positing that as incentives arise for the manipulation of firm performance through earnings management (due partly to conflicts of interest between firm insiders and outsiders), greater earnings management may signal higher adverse selection costs. If earnings manipulation reveals aggressive accounting practices, liquidity providers tend to widen bid-ask spreads to protect themselves. The empirical results indicate that companies with higher earnings management suffer lower equity liquidity.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Finance Research Letters.
Volume (Year): 6 (2009)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/frl
Equity liquidity Adverse selection costs Earnings management;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hans R. Stoll, 2000. "Presidential Address: Friction," Journal of Finance, American Finance Association, vol. 55(4), pages 1479-1514, 08.
- Huang, Roger D. & Stoll, Hans R., 1996. "Dealer versus auction markets: A paired comparison of execution costs on NASDAQ and the NYSE," Journal of Financial Economics, Elsevier, vol. 41(3), pages 313-357, July.
- Chung, Huimin, 2006. "Investor protection and the liquidity of cross-listed securities: Evidence from the ADR market," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1485-1505, May.
- K.V. Peasnell & P.F. Pope & S. Young, 2005. "Board Monitoring and Earnings Management: Do Outside Directors Influence Abnormal Accruals?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1311-1346.
- Ananth Madhavan & Matthew Richardson & Mark Roomans, 1996.
"Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks,"
New York University, Leonard N. Stern School Finance Department Working Paper Seires
96-34, New York University, Leonard N. Stern School of Business-.
- Madhavan, Ananth & Richardson, Matthew & Roomans, Mark, 1997. "Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 1035-64.
- Ananth Madhavan & Matthew Richardson & Mark Roomans, . "Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks," Rodney L. White Center for Financial Research Working Papers 20-94, Wharton School Rodney L. White Center for Financial Research.
- Bonnie F. Van Ness & Robert A. Van Ness & Richard S. Warr, 2002. "Is the Adverse Selection Component Really Higher on the NYSE/Amex than on the Nasdaq?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(5&6), pages 807-824.
- Richardson, Vernon J, 2000. " Information Asymmetry and Earnings Management: Some Evidence," Review of Quantitative Finance and Accounting, Springer, vol. 15(4), pages 325-47, December.
- Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September.
- George, Thomas J & Kaul, Gautam & Nimalendran, M, 1991. "Estimation of the Bid-Ask Spread and Its Components: A New Approach," Review of Financial Studies, Society for Financial Studies, vol. 4(4), pages 623-56.
- Hans R. Stoll, .
"The Supply of Dealer Services in Securities Markets,"
Rodney L. White Center for Financial Research Working Papers
2-78, Wharton School Rodney L. White Center for Financial Research.
- Stoll, Hans R, 1978. "The Supply of Dealer Services in Securities Markets," Journal of Finance, American Finance Association, vol. 33(4), pages 1133-51, September.
- Hans R. Stoll, . "The Supply of Dealer Services in Securities Markets," Rodney L. White Center for Financial Research Working Papers 02-78, Wharton School Rodney L. White Center for Financial Research.
- Brockman, Paul & Howe, John S. & Mortal, Sandra, 2008. "Stock market liquidity and the decision to repurchase," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 446-459, September.
- Pankaj K. Jain & Jang-Chul Kim & Zabihollah Rezaee, 2008. "The Sarbanes-Oxley Act of 2002 and Market Liquidity," The Financial Review, Eastern Finance Association, vol. 43(3), pages 361-382, 08.
- Marta Cristina Pelucio Grecco, 2013. "The Effect of Brazilian convergence to IFRS on earnings managment by listed Brazilian nonfinancial companies," Brazilian Business Review, Fucape Business School, vol. 10(4), pages 110-132, October.
- Esmaeel Farzaneh Kargar & Eesa Zarei, 2014. "Reviewing the Relationship between Institutional Ownership and Outside Members of Board of Directors, and Liquidity of Common Stocks of Companies Quoted in Tehran Stock Exchange," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(2), pages 218-231, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.