IDEAS home Printed from https://ideas.repec.org/a/wsi/rpbfmp/v03y2000i03ns0219091500000157.html
   My bibliography  Save this article

The Effect of Information Asymmetry on Bid-Ask Spreads Around Earnings Announcements by NASDAQ Firms

Author

Listed:
  • Samuel Tung

    (School of Business, The Hong Kong Baptist University, Kowloon, Hong Kong, China)

Abstract

This paper empirically tests Kim and Verrecchia's (1994, hereafter KV) theory that bid-ask spreads may increase around earnings announcements when information asymmetry increases between the informed traders and the less informed market-makers. Despite certain limitations, prior research has used analysts' earnings forecasts as a proxy for information asymmetry. I substitute the percentage of common stocks held by institutional investors as a more precise proxy for information asymmetry. Consistent with KV's proposition, I find (1) that bid-ask spreads increase at the time of earnings announcements, and (2) that bid-ask reactions to earnings announcements are significantly positively related to information asymmetry even after controlling for the effects of other cross-sectional determinants of spreads.

Suggested Citation

  • Samuel Tung, 2000. "The Effect of Information Asymmetry on Bid-Ask Spreads Around Earnings Announcements by NASDAQ Firms," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 3(03), pages 331-346.
    • Handle: RePEc:wsi:rpbfmp:v:03:y:2000:i:03:n:s0219091500000157
    DOI: 10.1142/S0219091500000157
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0219091500000157
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0219091500000157?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pieter T. Elgers & May H. Lo & Wenjuan Xie & Le Emily Xu, 2016. "A Contextual Evaluation of Composite Forecasts of Annual Earnings," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(03), pages 1-40, September.
    2. Andrew Buskirk, 2012. "Disclosure frequency and information asymmetry," Review of Quantitative Finance and Accounting, Springer, vol. 38(4), pages 411-440, May.
    3. Lucy Lim, 2016. "Dual-class versus single-class firms: information asymmetry," Review of Quantitative Finance and Accounting, Springer, vol. 46(4), pages 763-791, May.
    4. Robert Freeman & Adam Koch & Haidan Li, 2011. "Can historical returns-earnings relations predict price responses to earnings news?," Review of Quantitative Finance and Accounting, Springer, vol. 37(1), pages 35-62, July.
    5. Federica Salvadè, 2018. "Is less information better information? Evidence from the credit rating withdrawal," Review of Quantitative Finance and Accounting, Springer, vol. 51(1), pages 139-157, July.
    6. Zhefeng Liu & Fayez Elayan, 2015. "Litigation risk, information asymmetry and conditional conservatism," Review of Quantitative Finance and Accounting, Springer, vol. 44(4), pages 581-608, May.
    7. Beixin Lin & Rong Yang, 2012. "Does Regulation Fair Disclosure affect analysts’ forecast performance? The case of restructuring firms," Review of Quantitative Finance and Accounting, Springer, vol. 38(4), pages 495-517, May.
    8. Dina El-Mahdy & Myung Park, 2014. "Internal control quality and information asymmetry in the secondary loan market," Review of Quantitative Finance and Accounting, Springer, vol. 43(4), pages 683-720, November.

    More about this item

    Keywords

    institutional ownership; market reaction; market liquidity; cost of capital;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:rpbfmp:v:03:y:2000:i:03:n:s0219091500000157. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/rpbfmp/rpbfmp.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.