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Stock market liquidity and information asymmetry around voluntary earnings disclosures

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  • Faten Lakhal

Abstract

Purpose - The purpose of this paper is to examine whether non‐mandated earnings disclosures include value‐relevant information and affect information asymmetry and stock market liquidity. Design/methodology/approach - The event study methodology explores the informational content of good, bad and neutral voluntary earnings disclosures. The OLS panel regression framework is, then, used to analyze information asymmetry and stock market liquidity subsequent to both categories of voluntary earnings disclosures (i.e. earnings forecasts and quarterly earnings disclosures). Findings - Empirical tests show that voluntary earnings disclosures include material information and that bad news is released in an untimely fashion leading to information leakage in the pre‐announcement period. The results also indicate that quarterly earnings enhance stock market liquidity by shrinking bid‐ask spreads. However, earnings forecasts exacerbate information asymmetry before and after the announcement date. This result confirms the existence of information leakage and suggests that managers have considerable discretion whether to make a forecast, and in deciding its timing, form, and specificity. Research limitations/implications - This paper examines stock market liquidity around voluntary earnings disclosures using effective spreads. Future research should examine other proxies for market liquidity, i.e. market depth. Practical implications - The results provide insights on the positive benefits of a disclosure policy. Companies have to provide investors with better and timely information in order to mitigate the information leakage risk and thus improve stock market liquidity. Originality/value - This paper provides new evidence about information content, information asymmetry and stock market liquidity around voluntary earnings disclosures in France. Unlike financial statements disclosures, quarterly earnings and earnings forecasts are isolated events that can be evaluated by the market with less noise.

Suggested Citation

  • Faten Lakhal, 2008. "Stock market liquidity and information asymmetry around voluntary earnings disclosures," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 4(1), pages 60-75, January.
    • Handle: RePEc:eme:ijmfpp:v:4:y:2008:i:1:p:60-75
    DOI: 10.1108/17439130810837384
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    Citations

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    Cited by:

    1. Gelman, Sergey & Lushchikov, Roman, 2015. "Stock liquidity in forefront of anticipated announcements," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113176, Verein für Socialpolitik / German Economic Association.
    2. Jennifer Martínez-Ferrero & Lázaro Rodríguez-Ariza & Isabel-María García-Sánchez & Beatriz Cuadrado-Ballesteros, 2018. "Corporate social responsibility disclosure and information asymmetry: the role of family ownership," Review of Managerial Science, Springer, vol. 12(4), pages 885-916, October.
    3. Yuelin Li & Mehdi Sadeghi, 2009. "Price Performance and Liquidity Effects of Index Additions and Deletions: Evidence from Chinese Equity Markets," Asian Journal of Finance & Accounting, Macrothink Institute, vol. 1(2), pages 1652-1652, December.
    4. Paritosh Chandra SINHA & Pooja AGARWAL, 2021. "COVID-19 and CAPM: a tale of reference dependence with the pharma stocks’ returns," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(627), S), pages 45-82, Summer.
    5. Isabel†María García†Sánchez & Ligia Noguera†Gámez, 2018. "Institutional Investor Protection Pressures versus Firm Incentives in the Disclosure of Integrated Reporting," Australian Accounting Review, CPA Australia, vol. 28(2), pages 199-219, June.
    6. Jennifer Martínez‐Ferrero & David Ruiz‐Cano & Isabel‐María García‐Sánchez, 2016. "The Causal Link between Sustainable Disclosure and Information Asymmetry: The Moderating Role of the Stakeholder Protection Context," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 23(5), pages 319-332, September.
    7. Isabel‐María García‐Sánchez & Ligia Noguera‐Gámez, 2017. "Integrated Reporting and Stakeholder Engagement: The Effect on Information Asymmetry," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 24(5), pages 395-413, September.
    8. Ibrahim M. Menshawy & Rohaida Basiruddin & Nor‐Aiza Mohd‐Zamil & Khaled Hussainey, 2023. "Strive towards investment efficiency among Egyptian companies: Do board characteristics and information asymmetry matter?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2382-2403, July.
    9. Ao Kong & Robert Azencott & Hongliang Zhu & Xindan Li, 2020. "Pattern recognition in micro-trading behaviors before stock price jumps: A framework based on multivariate time series analysis," Papers 2011.04939, arXiv.org, revised Feb 2021.
    10. Anne Michaels & Michael Grüning, 2017. "Relationship of corporate social responsibility disclosure on information asymmetry and the cost of capital," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 28(3), pages 251-274, October.

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    Keywords

    Stock markets; Earnings; France;
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