Effects of large shareholding.pdfVIP

Journal of Banking Finance 30 (2006) 2875–2892 /locate/jbf Effects of large shareholding on information asymmetry and stock liquidity Najah Attig a,*, Wai-Ming Fong b, Yoser Gadhoum c, Larry H.P. Lang b a Department of Finance and Management Science, Saint Mary’s University, Halifax, Nova Scotia, Canada B3H 3C3 b Department of Finance, Chinese University of Hong Kong, Shatin, Hong Kong c Department of Business Strategy, University of Quebec in Montreal, Montreal, Canada Received 22 November 2004; accepted 7 December 2005 Available online 20 February 2006 Abstract Prior studies, such as Claessens et al.’s [Claessens, S., Djankov, S., Fan, J., Lang, L., 2002. Dis- entangling the incentive and entrenchment effects of large shareholding. Journal of Finance 57, 2741–2771], suggest that deviation between ultimate control and ownership decreases firm value (due to the entrenchment effects of large shareholding). Using a sample of Canadian firms, we study the relation of ultimate control and ownership with an important dimension of stock liquidity – bid– ask spread. We find that stocks with greater deviations between ultimate control and ownership have a larger information asymmetry component of their bid–ask spread and wider bid–ask spread. Our results are consistent with the notion that the ultimate owners of these stocks may have selfish agen- das. To increase the probability of the agendas being implemented, the firms may have poor infor- mation disclosure, resulting in poor stock liquidity. 2006 Elsevier B.V. All rights reserved. JEL classification: G32 Keywords: Ultima