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

265 NTU Management Review Vol. 30 No. 2 Aug. 2020 three components: order processing costs, inventory holding costs, and adverse selection costs. They indicate that even though earnings announcements result in increased information asymmetry, increased information asymmetry may not affect the total bid-ask spread due to the decreases in inventory holding costs and order processing costs. Affleck- Graves et al . (2002) investigate the relationships among earnings predictability, information asymmetry, and market liquidity. They show that on the day of and the day prior to quarterly earnings announcements, the adverse selection component of the bid-ask spread increases for low predictability firms but not for high predictability firms. In a non- announcement period, they find that firms with relatively less predictable earnings have higher total bid-ask spreads than firms with more predictable earnings. 2.4 Information Quality and Liquidity Risk Lambert et al . (2007) use a model that is consistent with the CAPM and document that the quality of a firm’s accounting information can decrease a firm’s cost of capital. Both directly affect market participants’ perceptions about the distribution of future cash flows, and indirectly affect real decisions that alter the distribution of future cash flows. However, there is no theoretical models which directly link information quality to liquidity risk (Ng, 2011). Recently, there have been a limited number of studies which investigate whether information quality affects liquidity risk, such as those by Lang and Maffett (2011), Sadka (2011), and Ng (2011). Lang and Maffett (2011) use a cross-country sample and find that firms with greater transparency (proxied by earnings management, CPA firms, firms mandatorily and voluntarily adopting International Accounting Standards, number of analysts forecasting the firm’s earnings, and forecast accuracy) experience less liquidity volatility, fewer extreme illiquidity events, and lower correlations between firm-level liquidity with both market returns and market liquidity ( cov ( L i , R m ) and cov ( L i , L m ), where i and m indicate firm i and market m , respectively). They also document that these liquidity risk factors are all negatively correlated. Tobin’s Q. Ng (2011) uses the concept of liquidity risk proposed by Pástor and Stambaugh (2003), who extend Fama and French (1993) three-factor model by including a market liquidity factor. He shows that information quality is negatively related to liquidity risk and that a firm’s cost of capital is lower due to the effect of higher information quality in lowering liquidity risk. Sadka (2011) compares the studies above and further confirms the important role of accounting information during liquidity events.