臺大管理論叢 NTU Management Review VOL.30 NO.2

The Effect of Corporate Social Responsibility Performance on Financial Risk 264 especially the risk of information asymmetry faced by liquidity traders. 1 Previously, quite a few studies examine the impact of information asymmetry on the bid-ask spread (the price dimension of market liquidity), including studies by Stigler (1964), Demsetz (1968), and Bagehot (1971). These models indicate that liquidity traders sustain losses from trading with informed traders, and recover these losses through the bid-ask spread, implying that greater information asymmetry has a wider bid-ask spread. Due to time predictability and price relevance, earnings announcements offer an opportunity to examine the effect of the release of accounting information on information asymmetry and, hence, bid-ask spreads (Lee, Mucklow, and Ready, 1993; Kim and Verrecchia, 1994; Krinsky and Lee, 1996; Affleck-Graves, Callahan, and Chipalkatti, 2002). Lee et al . (1993) examine the effect of earnings announcements on the spread (price dimension of market liquidity) and the depth (quantity dimension of market liquidity). They indicate that specialists are averse to quoting extremes in either dimension because they attempt to strike a balance between the spread and the depth in managing liquidity risk. Hence, lower (higher) spreads are accompanied by higher (lower) depths. Consistent with this argument, they show that the combination of wider spreads and lower depths is sufficient to infer a decrease in quoted liquidity. Under this argument, they suggest that the quoted liquidity decreases after periods of high trading volume and in anticipation of earnings announcements and that this phenomenon is more pronounced for announcements with larger subsequent price changes. They contend that liquidity providers are sensitive to changes in information asymmetry risk and actively use both spreads and depths to manage this risk. Kim and Verrecchia (1994) analytically examine market liquidity and volume around earnings announcements. They assume that some market participants process earnings announcements into private information about a firm’s performance at some cost, and that market participants capable of obtaining informed judgments from public sources are willing to bear such costs. In turn, this amplifies the information asymmetries between traders and market makers. As a result, this increases bid-ask spreads and decreases liquidity, although earnings announcements induce more trading volume. Krinsky and Lee (1996) separate the bid-ask spread into 1 The typical information asymmetry model (e.g. Copeland and Galai, 1983; Glosten and Milgrom, 1985) assumes two types of traders: informed traders and liquidity traders. Informed traders trade because they have private information not currently reflected in prices, while liquidity traders trade for reasons other than superior information (Lee et al., 1993; Krinsky and Lee, 1996).