Corporate Governance And Stock Market Information Asymmetry, The Relationship Between Liquidity Study

Liquidity and information asymmetric in the stock market has been isssues of concern of regulatory agencies and investors. Regulatory agencies care about how to reduce information asymmetric so as to improve fairness of trading and how to improve market liquidity; Investment income is the most concern of investors. As information asymmetric leads uninformed investors to get loss when trading with informed investors and liquidity affects cost of trading, both information asymmetric and liquidity affect investment income. As a result, lots of domestic scholars research the topic of information asymmetric and liquidity. However, they focus on how to quantitative measure information asymmetric, the relationship between information asymmetric, liquidity and volatility. It means the research focus on itself of information asymmetric (how to measure it) or the result of information asymmetric(the relationship with liquidity), but not what leads to information asymmetric. The paper believe that corporate governance affects information asymmetric between owners and operators, controlling shareholders and minority shareholders. The paper research the relationship between corporate governance, information asymmetric and liquidity.The paper focus on two aspects. First, using the model of Easley、Kiefer、O’Hara and Paperman (1996), which measures PIN, and the model of Huang and Stoll (1997), which measures adverse selection cost, alone with tick by tick trading data on stock market of China, to quantitative measure information asymmetric.The empirical result indicates that variables of corporate governance indeed influence information asymmetric and liquidity. The stake of largest shareholder has a positive relationship with information asymmetric. When the nature of the largest shareholder is state-owned, the degree of information asymmetric is reduced. The proportion of institutional investor holding has a positive relationship with liquidity. Institutional investors improve liquidity of the stock, while good liquidity attract institutional investors to trade the stock, so there is a simultaneous relationship between corporate governance and liquidity.