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Corporate Governance and Equity Liquidity: analysis of S&P transparency and disclosure rankings

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  • Wei-Peng Chen
  • Huimin Chung

    (The National Chiao Tung University, Taiwan)

  • Chengfew Lee

    (Rutgers University)

  • Wei-Li Liao

    (The National Chiao Tung University, Taiwan)

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. Copyright (c) 2007 The Authors; Journal compilation (c) 2007 Blackwell Publishing Ltd.

Suggested Citation

  • Wei-Peng Chen & Huimin Chung & Chengfew Lee & Wei-Li Liao, 2007. "Corporate Governance and Equity Liquidity: analysis of S&P transparency and disclosure rankings," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(4), pages 644-660, July.
  • Handle: RePEc:bla:corgov:v:15:y:2007:i:4:p:644-660
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    References listed on IDEAS

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    1. Saleh H. Hussain & Chris Mallin, 2002. "Corporate Governance in Bahrain," Corporate Governance: An International Review, Wiley Blackwell, vol. 10(3), pages 197-210, July.
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    Cited by:

    1. Loukil, Nadia & Yousfi, Ouidad, 2010. "Firm's information environment and stock liquidity: evidence from Tunisian context," MPRA Paper 28699, University Library of Munich, Germany, revised Feb 2011.
    2. P. Krishna Prasanna & Anish S. Menon, 2012. "Corporate governance and stock market liquidity in India," International Journal of Behavioural Accounting and Finance, Inderscience Enterprises Ltd, vol. 3(1/2), pages 24-45.
    3. repec:bbz:fcpbbr:v:11:y:2014:i:1:p:1-24 is not listed on IDEAS
    4. Van Geyt, Debby & Van Cauwenberge, Philippe & Vander Bauwhede, Heidi, 2014. "Does high-quality corporate communication reduce insider trading profitability?," International Review of Law and Economics, Elsevier, vol. 37(C), pages 1-14.
    5. Balachandran, Balasingham & Faff, Robert, 2015. "Corporate governance, firm value and risk: Past, present, and future," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 1-12.
    6. Loukil, Nadia & Yousfi, Ouidad, 2010. "Does corporate governance affect stock liquidity in the Tunisian Stock Market?," MPRA Paper 28697, University Library of Munich, Germany, revised Feb 2011.
    7. Ke Tang & Changyun Wang, 2011. "Corporate Governance and Firm Liquidity: Evidence from the Chinese Stock Market," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 47(0), pages 47-60, January.
    8. Zreik, Ousayna & Louhichi, Waël, 2017. "Risk sentiment and firms’ liquidity in the French market," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 809-823.
    9. repec:sgm:jbfeuw:v:1:y:2017:i:7:p:90-101 is not listed on IDEAS

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