Corporate disclosure, transparency and stock liquidity: Empirical estimation from the Ghana Stock Exchange

Abstract

Illiquidity remains one of the biggest challenges facing many African Securities Markets including Ghana. The paper sought to empirically document the extent to which corporate disclosure and transparency (TDS) reduces information asymmetry on the GSE with a residual effect of improving liquidity. Using a multidimensional liquidity approach of Liu (2006) and Lesmond et al. (1999) and the corporate disclosure and transparency (TDS) index of Aksu and Kosedag (2006), Liquidity on TDS was regressed whilst controlling for firm level properties for 27 listed companies from 2003-2008. The study revealed that TDS significantly reduces information asymmetry among both informed and uninformed investors as well as minimising the agency conflicts between managers and outside investors resulting in shortening the Liu (2006) turnover-adjusted number of non-trading days. The study further revealed that on the average the potential delay in executing an order is over 100 days among investors on the Ghana Stock Exchange (GSE). Firm characteristics such as financial leverage, return on equity and size are significant determinants of stock liquidity on the GSE Key words: Corporate disclosure, transparency, liquidity, Ghana Stock Exchange, Ghana.