The relationship between stock liquidity risk and financial information quality criteria in Tehran Stock Exchange

Document Type : Research Paper

Authors

1 Department of Economics, Management and Accounting, Payame Noor University, Iran

2 Department of accounting, Islamic Azad University of Mashad, Mashad, Iran

Abstract

The current study aims to investigate the relationship between stock liquidity risk and financial information quality criteria (i.e. the timely dividends announcement, accruals quality and the percentage of profitability prediction error) of companies listed on the Tehran Stock Exchange. For this purpose, 148 cases of data from listed companies, collected from 2007 to 2012, were employed in order to test the hypotheses during 2007-2012. The results of the study reveal that there is a significant relationship between liquidity risk (the dependent variable) with quality of accruals, percentage of profitability prediction error and timely dividends announcement (independent variables). High levels of accruals quality and timely dividends announcement, cause reduction in stock's liquidity risk, and high percentages of profitability prediction error increase the stocks' liquidity risk.

Keywords

References

Acharya, V. & Pedersen, L.H. (2005). “Asset pricing with liquidity risk”. Journal of Financial Economics, 77(2), 375–410.
Admati, A. R. & Pfleiderer, P. C. (2006). The Wall Street Walk and shareholder activism: Exit as a form of voice, Stanford University GSB Research Paper 1918.
Brandon, R.G. & Wang, S. (2013). “Liquidity risk, return predictability, and hedge funds' performance: an empirical study”. Financial and Quantitative Analysis, 48(1), 219-244.
Brunnermeier, M. & Pedersen, L.H. (2009). “Market liquidity and funding liquidity”. Review of Financial Studies, 22(6), 2201–2238.
Fama, E. & French, K., (1993). “Common risk factors in the returns on stocks and bonds”. Financial Economics, 33(1), 3–56.
Fang, V.W. & Noe, T.H., Tice, S. (2009). “Stock market liquidity and firm value”. Financial Economics, 94(1), 150-169.
Hameed, A.; Kang, W. & Viswanathan, W. (2010). “Stock market declines and liquidity”, Journal of Finance, 65(1), 257-293.
Jeffrey, N.g. (2011). “The effect of information quality on liquidity risk”. Accounting and Economics, 52(2-3), 126–143.
Johnson, T.C. (2008). “Volume, liquidity, and liquidity risk”. Journal of Financial Economics, 87(2), 388–417.
Lambert, R.; Leuz, C. & Verrecchia, R. (2007). “Accounting information, disclosure, and the cost of capital”. Journal of Accounting Research, 45(2), 385–420.
Lang, M. & Maffett, M. (2010). Transparency and liquidity uncertainty in crisis periods, Working Paper, University of North Carolina at Chapel Hill.
Lee, K.H. (2011). “The world price of liquidity risk”. Financial Economics, 99(1), 136-161.
Liang, S.X., Wei, J.K.C. (2012). “Liquidity risk and stock returns around the world”. Banking and Finance, 36(12), 3274-3288.
Lin, H.; Wang, J. & Wu, C. (2013). “Liquidity Risk and Momentum Spillover from Stocks Bonds”. The Journal of Fixed Income, 23(1), 5-42.
Lin, H.; Wang, J. & Wu, C. (2011). “Liquidity risk and expected corporate bond returns”. Journal of Financial Economics, 99(3), 628–650.
Lin, J.C. & Wu Y. Seo (2013). “Timing and liquidity risk”. Corporate Finance, 19(1), 95-118.
Moorthy, S. (2003). Liquidity in the equity market: a portfolio trader’s perspective. In: Persaud, A. (Ed.), Liquidity Black Holes: Understanding, Quantifying and Managing Financial Liquidity Risk, London, Risk Books.
Morris, S &, Shin, H.S. (2003). “Liquidity black holes”. Review of Finance, 8(1), 1-18.
Palmiter, A. R. (2002). “Mutual Fund Voting of Portfolio Shares: Why Not Disclose?”. Cardozo Law Review, 23(4):1419–1491.
Pastor, L. & Stambaugh, R. (2003). “Liquidity risk and expected stock returns”. Political Economy, 111(3), 642–685.
Sadka, R. (2006). “Momentum and post-earnings-announcement drift anomalies: the role of liquidity risk”. Journal of Financial Economics, 80(2), 309–349.
Zhang, F.; Tian, Y. & Wirjanto, T. (2009). “Liquidity Risk and Cross- Sectional Returns: Evidence from the Chinese Stock Markets”. Finance Research Letters, 6(4), 159-165.
Interdisciplinary Journal of Management Studies (Formerly known as Iranian Journal of Management Studies)
Volume 8, Issue 4 - Serial Number 4
October
October 2015
Pages 503-521

Files

Share

How to cite

Statistics