Abstract
Article history: Received 5 January 2014 Received in revised format 8 March 2014 Accepted 14 March 2014 Available online 16 March 2014 This study investigates the effect of stock liquidity and stock liquidity risk on information asymmetry in Tehran Stock Exchange (TSE) listed companies. In this study, the bid-ask spread is considered as the criterion of information asymmetry. In addition, stock trade volume and the number of stock trades are considered as the criteria of stock liquidity. Some variables such as size, stock price, beta and growth are also considered as control variables. To test the hypotheses of the survey, 202 TSE listed companies over the period 2007-2012 are considered based on the multiple regression (Panel) method. The evidence shows that both proposed criteria, stock liquidity criterion as well as the stock trade volume and the number of stock trades, had negative effects on information asymmetry, but this effect is not statistically meaningful. In addition, evidence shows that stock liquidity risk had positive effect on information asymmetry, which is statistically meaningful. Research results also show that firm size and beta had positive and meaningful effects on information asymmetry. Finally, the results show that growth and stock price had negative meaningful effects on information asymmetry. © 2014 Growing Science Ltd. All rights reserved.
Highlights
During the past few years, there have been many studies on the effects of various factors on information asymmetry (Amihud et al, 2006). Amihud (2002) demonstrated that over time, expected market illiquidity positively influences ex ante stock excess return, implying that expected stock excess return partly represents an illiquidity premium
Evidence shows that stock liquidity risk had positive effect on information asymmetry, which is statistically meaningful
The results show that growth and stock price had negative meaningful effects on information asymmetry
Summary
During the past few years, there have been many studies on the effects of various factors on information asymmetry (Amihud et al, 2006). Amihud (2002) demonstrated that over time, expected market illiquidity positively influences ex ante stock excess return, implying that expected stock excess return partly represents an illiquidity premium. The first one was altering the trading incentives of informed and uninformed investors and the second one was associated with reducing the likelihood that investors discover and trade on private information Their results indicated that the negative association between disclosure quality and information asymmetry was created by the latter reason. Butler et al (2005) explained that stock market liquidity was an important determinant of the expenses of raising external capital They reported find that, ceteris paribus, investment banks' fees were significantly lower for firms with more liquid stock based on a large sample of seasoned equity offerings. Chang et al (2010) studied the liquidity/stock returns linkage based on data from the Tokyo Stock Exchange They reported a substantially negative (positive) relationship between liquidity (illiquidity) proxies and returns. After sorting companies into size quintiles and into liquidity quintiles, the average debt-to-asset ratio of the most liquid quintiles was about 38% while the average for the least liquid quintiles was 55%. Liu (2006) reported a significant liquidity premium robust to the capital asset pricing model and the Fama–French three-factor model and explained that liquidity was an important source of priced risk based on a new measure of liquidity
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