Corporate Disclosures, Information Asymmetry and Stock-Market Liquidity in France

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. We opt for an explanatory study using OLS regressions to examine the nature of the relationship between information disclosed in annual reports and bid-ask spreads a proxy for information asymmetry and stock market liquidity. 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 from 2005. The decomposition of the total score in the sub-indices shows that non-financial and financial information are important in trading decisions while strategic information may be attractive only for long-term positions