Article ID Journal Published Year Pages File Type
5069835 Finance Research Letters 2009 7 Pages PDF
Abstract

This study investigates the relationship between earnings management and equity liquidity, positing that as incentives arise for the manipulation of firm performance through earnings management (due partly to conflicts of interest between firm insiders and outsiders), greater earnings management may signal higher adverse selection costs. If earnings manipulation reveals aggressive accounting practices, liquidity providers tend to widen bid-ask spreads to protect themselves. The empirical results indicate that companies with higher earnings management suffer lower equity liquidity.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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