Examining the relationship between earning management and market liquidity
جاري التحميل...
التاريخ
المؤلفين
عنوان الدورية
ردمد الدورية
عنوان المجلد
الناشر
Research in International Business and Finance
خلاصة
The main purpose of this paper is to argue the extent that earnings management lowers liquidity. It should increase information asymmetry and impair trading liquidity. Earnings management is one of the management practices on financial statements that is the most used and the most studied by positive accounting theory. Schipper (1989) defines it as: “Purposeful intervention in the external financial reporting process, with the intent of obtaining some private gain”. The concept of Market liquidity is highly dependent on informational transparency. High liquidity allows companies to raise additional funds on favourable terms through low transaction costs and no time lag between economic agents (Stoll, 1978; Glosten and Milgrom, 1985). The presence of information asymmetry in the market may reduce liquidity (Jacoby et al., 2000).
Using a sample of French firms from 2008 to 2011, we find that firms that manage earnings have wider bid-ask spreads. Our results are robust for both of two well-established measures of market liquidity. Therefore, the empirical results indicate that firms that exhibit greater earnings management are associated with lower market liquidity. These findings are in line with adverse selection and shed light on the role corporate governance devices can play in the consideration of shareholder interest’s protection, which leads to improved stock market liquidity levels.