Information Disclosure and Stock Liquidity: Evidence from Borsa Italiana

18 Pages Posted: 18 Dec 2013

See all articles by Riccardo Palumbo

Riccardo Palumbo

University of Chieti-Pescara; European Capital Markets CRC

Francesco Capalbo

Second University of Naples - Department of Economics; Seconda Universita degli Studi di Napoli

Dionigi Gerace

The University of Sydney

Vito Mollica

Macquarie Graduate School of Management; Capital Markets CRC Limited (CMCRC); Macquarie University, Macquarie Business School

Date Written: December 2013

Abstract

This article examines the effect of increased corporate information disclosure on stock liquidity. Using the adoption of International Financial Reporting Standards (IFRS) in Italy as a natural experiment we extend previous work examining the effect on one measure of liquidity - bid‐ask spreads - to others, specifically depth and the price impact of transactions (or effective bid‐ask spreads). Consistent with previous research we find that bid‐ask spreads of stocks decline following the introduction of IFRS, which implies that stock liquidity increases for small traders. However, we also provide evidence that depth at the best quotes declines, which challenges the proposition that liquidity increases for large trades following an increase in disclosure. In additional tests, we find that effective bid‐ask spreads of block trades also decline following the introduction of IFRS. Overall, this evidence confirms that stock liquidity for both small and large trades increases following an increase in corporate information disclosure.

Keywords: Bid‐ask spread, Borsa Italiana, Depth, IFRS, Liquidity

Suggested Citation

Palumbo, Riccardo and Capalbo, Francesco and Gerace, Dionigi and Mollica, Vito, Information Disclosure and Stock Liquidity: Evidence from Borsa Italiana (December 2013). Abacus, Vol. 49, Issue 4, pp. 423-440, 2013, Available at SSRN: https://ssrn.com/abstract=2369059 or http://dx.doi.org/10.1111/abac.12014

Riccardo Palumbo

University of Chieti-Pescara ( email )

Via Luigi Polacchi 11
Chieti, Chieti 66100
Italy

HOME PAGE: http://www.unich.it

European Capital Markets CRC ( email )

Via Luigi Polacchi 11
Chieti, Chieti 66100
Italy

HOME PAGE: http://www.ecmcrc.org

Francesco Capalbo

Second University of Naples - Department of Economics ( email )

Corso Gran Priorato di Malta
Capua, Caserta 81043
Italy

Seconda Universita degli Studi di Napoli ( email )

Via Catullo 64
80122 Napoli, Caserta
Italy
0823 620218 (Phone)

Dionigi Gerace

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Vito Mollica

Macquarie Graduate School of Management ( email )

Capital Markets CRC Limited (CMCRC) ( email )

Level 3, 55 Harrington Street
Sydney, 2000
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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