The Association between Commonality in Liquidity and Corporate Disclosure Practices in Taiwan

Alpha Lowe

Department of Finance, Feng Chia University, Taichung, Chinese Taipei.

DOI: 10.4236/me.2014.54030                

Abstract

With a sample of stocks listed on the Taiwan stock exchange (TWSE), this paper examines whether a firm’s disclosure practices influence its institutional ownership and inclusion of ETFs and, hence, its commonality in liquidity. Using the grade of Taiwan SFI’s Information Disclosure and Transparency Rankings System (IDtrs) as a proxy for corporate disclosure practices, my findings robustly indicate that TWSE-listed stocks with good (bad) corporate disclosure practices exhibit high (low) commonality in liquidity. I further show that this positive disclosure-commonality relation can be partly attributed to institutional investing and index trading. Overall, consistent with a demandside explanation of commonality in liquidity, I conclude that stocks with good (bad) disclosure practices would have a high (low) likelihood of institutionalization and indexation, which should imply a high (low) commonality in their liquidity.

Keywords

Commonality in Liquidity, Disclosure Practices, IDtrs, Institutional Ownership, Index Trading

Conflicts of Interest

The authors declare no conflicts of interest.

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