Relationship between Transparency, Liquidity and Valuation
Recent evidences on liquidity and valuation of securities in the capital markets clearly show the importance of stock market liquidity and valuation of firms. In this paper, relationship between transparency, liquidity, and valuation is studied by using data obtained from 70 companies listed in Tehran Stock Exchange during2003-2012. In this study, discriminatory earnings management, as a sign of lack of transparency and Tobin's Q, was used as the criteria of valuation. The results indicate that there is a significant and reversed relationship between earnings management and liquidity. On the other hand, there is a relationship between liquidity and transparency.The results also indicate a significant relationship between transparency and valuation. Transparency has an indirect effect on firm valuation alone or through the liquidity channel. Although the effect of transparency on the value of a firm was reduced by adding the variable of liquidity, the cumulative effect of transparency and liquidity increased.
<p>[1] Barth,M.,Landsman,W.,Lang,M.,20008.International Accounting
Standards and Accounting Qualities. Journal of Accounting research
46,467-496
[2] Bekaert, G., C. R. Harvey, and C. Lundblad. "Liquidity and Expected
Returns: Lessons from Emerging Markets." Review of Financial Studies
20.6 (2007): 1783-831
[3] Bigdeli Eslami, Gh, and A. Saranj. "Selection of Portfolio Using Three
Measures of Average Returns, Standard Deviation of Returns and
Liquidity in Tehran Stock Exchange." Accounting and Auditing Studies
53.15 (2008): 3-16.
[4] Daske, Holger. "Economic Benefits of Adopting IFRS or US-GAAP -
Have the Expected Cost of Equity Capital Really Decreased?" Journal
of Business Finance and Accounting 0.0 (2006): 329-73.
[5] Daske, Holger, Luzi Hail, Christian Leuz, and Rodrigo Verdi.
"Mandatory IFRS Reporting around the World: Early Evidence on the
Economic Consequences." Journal of Accounting Research 46 (2008):
1085-142.
[6] Francis,J.,LaFond,R.,Olsson,P.,Schipper,K. 2004.Cost of Equity and
Earning Attributes. The Accounting Review 79, 967-1010.
[7] Gass, David. "Importance Of Transparency In Financial Reporting."
(n.d.): n. pag. 04 Dec. 2006. <http://ezinearticles.com/?Importance-Of-
Transparency-In-Financial-Reporting>.
[8] Glosten, Lawrence R., and Paul Milgrom. "Bid, Ask and Transaction
Prices in a Specialist Market with Heterogeneously Informed Traders."
Journal of Financial Economics 14.1 (1985): 71-100.
[9] Hail, Luzi, and Christian Leuz. "International Differences in the Cost of
Equity Capital: Do Legal Institutions and Securities Regulation Matter?"
Journal of Accounting Research 44.3 (2006): 485-531.
[10] Hail, Luzi, and Christian Leuz. "Cost of Capital Effects and Changes in
Growth Expectations around U.S. Cross-listings." Journal of Financial
Economics 93.3 (2009): 428-54.
[11] Lang,M.,Smith, Raedy,J.,Wilsom,W.,2006,Earning Management and
Cross Listing: Are Reconciles Earnings Comparable to U.S. Earnings?
Journal of Accounting and Economics 42, 255-283.
[12] Lang, Mark H., Karl V. Lins, and Mark Maffett. "Transparency,
Liquidity, and Valuation: International Evidence on When Transparency
Matters Most." Journal of Accounting Research (JAR) (2011): n. page.
[13] Leuz, Christian. "IAS versus U.S. GAAP: Information Asymmetry-
Based Evidence from Germany's New Market." Journal of Accounting
Research 41.3 (2003): 445-72.
[14] Leuz,C.,Nanda,D.,Wysocki,P.,2003.Earning Management and Investor
Protection: An International Comparison. Journal of Financial
Economics 69-505-527.
[15] Nikolaev, Valeri, and Laurence Van Lent. "The Endogeneity Bias in the
Relation between Cost-of-debt Capital and Corporate Disclosure
Policy." European Accounting Review 14.4 (2005): 677-724.
[16] Roulstone, Darren T. "Analyst Following and Market Liquidity."
Contemporary Accounting Research 20.3 (2003): 552-78.
[17] Yahyazadefar, M., and J. Khorramdin. "The Role of Liquidity and Lack
of Liquidity Risk on Excess Stock Returns in Tehran Stock Exchange."
Journal of Accounting and Auditing Reviews 53 (n.d.): n. page.<http: ezinearticles.com="" importance-of-="" transparency-in-financial-reporting=""></http:></p>
<p>[1] Barth,M.,Landsman,W.,Lang,M.,20008.International Accounting
Standards and Accounting Qualities. Journal of Accounting research
46,467-496
[2] Bekaert, G., C. R. Harvey, and C. Lundblad. "Liquidity and Expected
Returns: Lessons from Emerging Markets." Review of Financial Studies
20.6 (2007): 1783-831
[3] Bigdeli Eslami, Gh, and A. Saranj. "Selection of Portfolio Using Three
Measures of Average Returns, Standard Deviation of Returns and
Liquidity in Tehran Stock Exchange." Accounting and Auditing Studies
53.15 (2008): 3-16.
[4] Daske, Holger. "Economic Benefits of Adopting IFRS or US-GAAP -
Have the Expected Cost of Equity Capital Really Decreased?" Journal
of Business Finance and Accounting 0.0 (2006): 329-73.
[5] Daske, Holger, Luzi Hail, Christian Leuz, and Rodrigo Verdi.
"Mandatory IFRS Reporting around the World: Early Evidence on the
Economic Consequences." Journal of Accounting Research 46 (2008):
1085-142.
[6] Francis,J.,LaFond,R.,Olsson,P.,Schipper,K. 2004.Cost of Equity and
Earning Attributes. The Accounting Review 79, 967-1010.
[7] Gass, David. "Importance Of Transparency In Financial Reporting."
(n.d.): n. pag. 04 Dec. 2006. <http://ezinearticles.com/?Importance-Of-
Transparency-In-Financial-Reporting>.
[8] Glosten, Lawrence R., and Paul Milgrom. "Bid, Ask and Transaction
Prices in a Specialist Market with Heterogeneously Informed Traders."
Journal of Financial Economics 14.1 (1985): 71-100.
[9] Hail, Luzi, and Christian Leuz. "International Differences in the Cost of
Equity Capital: Do Legal Institutions and Securities Regulation Matter?"
Journal of Accounting Research 44.3 (2006): 485-531.
[10] Hail, Luzi, and Christian Leuz. "Cost of Capital Effects and Changes in
Growth Expectations around U.S. Cross-listings." Journal of Financial
Economics 93.3 (2009): 428-54.
[11] Lang,M.,Smith, Raedy,J.,Wilsom,W.,2006,Earning Management and
Cross Listing: Are Reconciles Earnings Comparable to U.S. Earnings?
Journal of Accounting and Economics 42, 255-283.
[12] Lang, Mark H., Karl V. Lins, and Mark Maffett. "Transparency,
Liquidity, and Valuation: International Evidence on When Transparency
Matters Most." Journal of Accounting Research (JAR) (2011): n. page.
[13] Leuz, Christian. "IAS versus U.S. GAAP: Information Asymmetry-
Based Evidence from Germany's New Market." Journal of Accounting
Research 41.3 (2003): 445-72.
[14] Leuz,C.,Nanda,D.,Wysocki,P.,2003.Earning Management and Investor
Protection: An International Comparison. Journal of Financial
Economics 69-505-527.
[15] Nikolaev, Valeri, and Laurence Van Lent. "The Endogeneity Bias in the
Relation between Cost-of-debt Capital and Corporate Disclosure
Policy." European Accounting Review 14.4 (2005): 677-724.
[16] Roulstone, Darren T. "Analyst Following and Market Liquidity."
Contemporary Accounting Research 20.3 (2003): 552-78.
[17] Yahyazadefar, M., and J. Khorramdin. "The Role of Liquidity and Lack
of Liquidity Risk on Excess Stock Returns in Tehran Stock Exchange."
Journal of Accounting and Auditing Reviews 53 (n.d.): n. page.<http: ezinearticles.com="" importance-of-="" transparency-in-financial-reporting=""></http:></p>
@article{"International Journal of Business, Human and Social Sciences:58139", author = "Zahra Lashgari and Naghmeh Sadat MaghamiTekiyeh", title = "Relationship between Transparency, Liquidity and Valuation", abstract = "Recent evidences on liquidity and valuation of securities in the capital markets clearly show the importance of stock market liquidity and valuation of firms. In this paper, relationship between transparency, liquidity, and valuation is studied by using data obtained from 70 companies listed in Tehran Stock Exchange during2003-2012. In this study, discriminatory earnings management, as a sign of lack of transparency and Tobin's Q, was used as the criteria of valuation. The results indicate that there is a significant and reversed relationship between earnings management and liquidity. On the other hand, there is a relationship between liquidity and transparency.The results also indicate a significant relationship between transparency and valuation. Transparency has an indirect effect on firm valuation alone or through the liquidity channel. Although the effect of transparency on the value of a firm was reduced by adding the variable of liquidity, the cumulative effect of transparency and liquidity increased.
", keywords = "Firm valuation, Earnings management, Liquidity,
Tobin's Q, Transparency.", volume = "7", number = "6", pages = "1687-6", }
