The impact of financial disclosure on the information asymmetry and the liquidity of French listed companies

This paper examines the relationship between the extent of financial disclosure, information asymmetry and stock-market liquidity in France. Based on a sample of 196 French listed firms over a period from 2004 to 2007, we find that there is a positive and statistically significant relationship between the extent of information displayed through annual reports and market liquidity. This is explained by the negative effect of the disclosure on the adverse selection component of the bid-ask spread. This effect is confirmed by the commitment to IFRS by French-listed firms since 2005. This result should encourage French authorities to enhance their informational environment as a means to reduce information asymmetry and to prevent the risk of illiquidity.