Corporate disclosures, information asymmetry and stock-market liquidity in France

Abstract

This paper aims at studying the effect of corporate disclosures on information asymmetry and stock-market liquidity in France. Specifically, the purpose of this paper is to highlight the importance of information included in the annual reports on investor’s behavior. This is proxied by the information asymmetry component of the bid-ask spread and stock market liquidity. Our sample includes 196 French listed firms over a period ranging from 2004 to 2007. The results show that the extent of corporate disclosures in annual reports positively influences the liquidity of the French market and negatively affects the adverse selection component of the bid-ask spread. This effect is further confirmed by the commitment to IFRS by French-listed firms since 2005. Results on sub-scores show that non-financial and financial information are important in trading decisions while strategic information may be attractive only for long-term positions.