Effects of Large Shareholding on Information Asymmetry and Stock Liquidity
Najah Attiga, Wai-Ming Fongb, Yoser Gadhoumc and Larry H.P. Langd
August 2004
JEL Classification: G32
Keywords: difference between ultimate control and ownership
Effects of Large Shareholding on Information Asymmetry and Stock Liquidity
Abstract
Prior studies, such as Claessens, Djankov, Fan and Lang (2002), suggest that separation between ultimate control and ownership decreases firm value (due to the entrenchment effects of large shareholding). Using a sample of Canadian firms, we find that stocks with a greater deviation between ultimate control and ownership have a larger information asymmetry component of their bid-ask spread and a wider quoted bid-ask spread. Our results are consistent with the notion that the ultimate owners of these stocks may have a selfish agenda. To increase the probability of it being implemented, the firm may also have poor information disclosure, resulting in an illiquid stock.