Corporate Transparency, Stock Liquidity And Liquidity Risk

With the development of marketization reforming, information transparency hasbecome one of the hottest topic in China. In fact, not only is corporate transparencygood to efficient allocation of resource, but also favorable to steady development of theeconomy. Especially, in capital market, the confidence of the investors and the vitalityof the market are all depend on information transparency. As the improvement ofliquidity and liquidity risk is favorable to corporate value, it is so important for us tofind out the method to protect them.This paper is concentrated on the relationship among corporate transparency, liquidityand liquidity risk. Academically, on the one hand information transparency may reducestock`s transaction cost to improve its liquidity by holding back adverse selectionbetween the investors; On the other hand may also lower the liquidity risk caused by theuncertainty of the corporate value. So, it`s really meaningful for us to find out how toregain the market vitality from transparency. In Chinese specific institutionalbackground, we choose research sample from2003-2011A Stocks in Chinese stockmarkets of Shanghai and Shenzhen, and the measure corporate transparency separatelyin the aspects of earning quality, whether choosing Big4, Score from Shenzhen StockExchange, the following analysts and the accuracy of what they predict. And finally, weconstruct an index TRANS to capture all the characters in transparency through the5variables described ahead. In the meanwhile, we also use the negative rate of zero returndays and the negative price impact to measure liquidity through daily trade data, and inthe basis of price impact we construct the liquidity risk. Then, through regressionanalyzing, first we discover that higher earing quality, more following analysts, moreearning prediction accuracy, and more likely to choose Big4can offer more liquidity.Second, from the synthesized index Trans constructed by the average of percentile ranks,we further conclude that more corporate transparency can take more liquidity. What`smore, this positive relationship is strengthened in the group of high institutions holdingshares and bad corporate governance. For the stock`s liquidity risk, the result shows thatcorporate transparency has a negative relationship with it, and this relationship is morestrong in the high institution shares holding group and serious agent problem existinggroup. At last, we have done a susceptible test, and find out the result is robust. This paper has studied the economic result of corporate transparency from theperspective of liquidity and liquidity risk. Therefore it is really meaningful in policy forregulation institutions to strengthen information disclosure and the ability of theinstitutional investors.