مقاله انگلیسی رایگان در مورد قیاس نقدشوندگی سهام و گزارش های مالی – تیلور و فرانسیس 2022

Abstract

     This study examines the effect of financial statement comparability on stock liquidity. Drawing from information asymmetry arguments, we posit that greater comparability increases financial transparency, which improves the information environment and increases stock liquidity. Our results show a positive relationship between comparability and stock liquidity. However, the effect of comparability on stock liquidity is only significant for non state-owned enterprises. Additionally, institutional ownership strengthens the impact of comparability on stock liquidity. Our findings suggest a more pronounced comparability effect on stock liquidity for firms with greater information opacity. Overall, our study indicates that higher comparability decreases information asymmetry and facilitates investors’ decision-making.

Introduction

     Financial Accounting Standards Board (FASB) (2010) suggests that financial statement comparability (hereafter comparability) is a fundamental qualitative feature of financial reporting. Comparability increases faithful representation and relevance of financial statements as well. Higher comparability enhances the magnitude of firm-specific information and boosts the extant information environment. Comparability facilitates identifying and understanding similarities and differences among different firms (Barth 2013). Relative evaluation of investment avenues would be impossible without comparable information, which makes comparability essential for investment purposes. Therefore, the FASB (2010) conceptual framework suggests that the chief objective of financial reports is to enhance comparability, which improves the usefulness of the information. Similarly, the SEC concept release1 suggests that comparability along with reliability and transparency are the ‘only way to achieve fair, liquid and efficient capital markets’. Thus, comparability, for its immense importance in equity valuation, has been given due importance in textbooks as well (Healy and Palepu 2012). The value of comparability for academics, capital market participants, standard setters, and practitioners makes it crucial to investigate the impact of comparability on stock liquidity. Comparability plays a vital role in the efficient utilization of resources (Kim et al. 2020), improving the informativeness of stock prices (Choi et al. 2019), enhancing acquisition efficiency (Chen et al. 2018), decreasing the cost of capital (Imhof, Seavey, and Smith 2017), reducing the crash risk (Kim et al. 2016), and improving firm value (Neel 2017).

Conclusion

     This study explores the effect of the qualitative aspect of financial reporting, i.e. comparability, on the stock liquidity. Comparability improves the acquisition and processing of financial information leading to lower information asymmetry. Higher comparability improves the comparison of investment avenues and makes decision-making quick and eloquent. This study augments the previous studies that financial reporting bridges the gap among investors and reduces the adverse selection cost leading to higher stock liquidity. In this way, our study extends earlier literature by studying the effects of qualitative aspects of financial reporting.

     We document that higher comparability enhances the flow of information to the traders, reduces adverse selection, and increases stock liquidity. Our results remain identical when we use alternative comparability measures or alternative econometric specifications, e.g. lag of the primary independent variable, two-stage least square regression, and GMM. Further, we delve into the institutional settings of the Chinese market and explore the role of state ownership on the nexus of comparability and stock liquidity. We document that comparability has an insignificant association with liquidity in SOEs. The objectives, as well as decisions of SOEs, are different from NEOs. The support of the state reduces its default risk and improves its suitability for investment. We also examine the effect of institutional ownership on the relationship between comparability and liquidity. Our findings suggest that institutional ownership strengthens the relationship between comparability and liquidity. The findings also indicate that the effect of comparability on stock liquidity is significant only in the non-crisis period. Additionally, the impact of comparability on stock liquidity is profound for firms with higher information opacity.