Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264996 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of Business Finance & Accounting [ISSN:] 1468-5957 [Volume:] 49 [Issue:] 5-6 [Publisher:] Wiley [Place:] Hoboken, NJ [Year:] 2021 [Pages:] 658-689
Publisher: 
Wiley, Hoboken, NJ
Abstract: 
We present a model that links the opacity of an asset to its liquidity. We show that while low‐opacity assets are liquid, intermediate levels of opacity provide incentives for investors to acquire private information, causing adverse selection and illiquidity. High opacity, however, benefits liquidity by reducing the value of a unit of private information. The cross‐section of bid–ask spreads of US firms is shown to be broadly consistent with this hump‐shaped relationship between opacity and illiquidity. Our analysis suggests that uniform disclosure standards may be suboptimal; efficient disclosure can instead be achieved through a two‐tier standard system or by subsidizing voluntary disclosure.
Subjects: 
asymmetric information
disclosure requirements
liquidity
opacity
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
Document Version: 
Published Version

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.