The Effect of Accounting Quality on the Size Change of The Stock Liquidity

Author Name(s): Aroosah Majidipour, *Farhad Shahveisi, Parastoo Majidipour
Author Email:

Abstract

The outcomes of poor accounting quality information include the reduction of quality of information environment of company, the increase of information asymmetry, incomplete information and reduced liquidity. The financial reporting quality with the effect on decisions of accounting information users leading to the market response are the issues receiving much attention by researches on financial management and accounting. This study aims to study the effect of accounting quality on the change of size of stock liquidity of companies. The study population is all companies listed on Tehran Stock Exchange (TSE). The study period is 2009-2013. The study is carried out on 122 companies as 61 companies with good accounting quality and 61 poor accounting quality. The results of hypothesis study show that stock liquidity is different in companies with good accounting quality compared to the companies with poor accounting quality. The results show that decision making structure of capital market is potentially affected by financial reporting environment of the companies and the behavior of financial reporting of managers is a factor to change their stock liquidity. These results can be useful for the capital market policy makers and accounting standard board to formulate the rules to enhance the role of accounting quality and for investment to present a basis to reduce liquidity risk of stock.

 Introduction

The main role of financial reporting is the effective transmission of information to external organization people by a timely and valid method and this is fulfilled by reporting transparency and qualified disclosure of financial information. The review of literature shows that the transparency and quality of disclosure of financial data of economic units have important effect on the strategies of investors. The current commercial and professional world is changed considerably. One of the reasons is globalization of economy. With the increasing changes, quality is the pre-requirement of global economy. The business units and investors are encountered with many investment opportunities and require logical decision making to optimize investment (Saghafi et al. 2001).Optimal decision Making for investment in business units or correct allocation of rare resources requires high quality financial data. One of the effective factors on optimal investment is the quality of accounting data as one of the most important information sources for investors (Yang & Jiang, 2008).The investors attempt to invest in some items of asset with the highest return, lowest risk and highest liquidity (Abzari et al. 2005) In each financial market, based on the depth of market, there are various tools for investment. Based on the return and risk of assets, the investors invest. One of the effective factors on assets risk is their liquidity capability. The role of liquidity factor is of great importance in assets valuation as the investors consider that if they want to sell the assets, is there any suitable market form them? (Yahyazadefar, 2008).

Conclusion

The financial reporting quality with the effect on decisions of accounting information users leading to the market response are the issues receiving much attention by researches on financial management and accounting. One of the important principles considered by standard formulators, financial report providers and users is information content of the reported values. This study evaluates the effect of accounting quality on the size of stock liquidity in 122 companies listed on TSE during 5 years from 2009 to 2013. Based on the hypothesis analysis results, accounting quality is an effective factor on financial variables of companies and stock liquidity is different in companies with good accounting quality and companies with poor accounting quality. Generally, the results of our study and other studies show that (considering the quality of accounting information to perceive information asymmetry can be considered as a good criterion in decision making and accounting information providers can be encouraged to present high quality information to meet the demands of society and the users of accounting information can be enticed to consider the significance of accounting information).

713 total views, no views today

Download PDF File

About the author: tej