We investigate the timing of open market share repurchases and the resultant impact on firm liquidity. Using the Stock Exchange of Hong Kong's unique disclosure environment, we identify the exact implementation dates for more than five thousand equity buybacks. We find that managers exhibit substantial timing ability. Consistent with the information-asymmetry hypothesis, bid–ask spreads widen and depths narrow during repurchase periods. We decompose bid–ask spreads and show that adverse selection costs increase substantially as market participants respond to the presence of informed managerial trading. Our findings provide additional insight into how markets process information and have significant implications for corporate payout and disclosure policies.

The pricing of audit services is a complex function of many variables. Prior research in this area has proposed various approaches and models to identify some of these factors. This paper includes a description of one such model. Studies based on this model, or modifications of it, have been performed in the U.S., Australia, New Zealand, and the U.K. This paper reports the findings of a similar study conducted in Canada. The analysis indicates that an approximately linear relationship exists between audit fee and a company's total assets or sales. In addition, the number of subsidiaries and the level of inventory are statistically significant determinants of audit fee in the Canadian setting. The extent of foreign assets was also a significant determinant of audit fee for large companies, while the amount of receivables was found to be a significant determinant of audit fee for small companies. The findings are compared with those reported previously for different countries and the result of a test for price competition in the Canadian audit market is also discussed. Résumé. L'établissement du prix des services de vérification est une fonction complexe faisant intervenir de nombreuses variables. Les travaux de recherche précédents dans ce domaine ont débouché sur diverses méthodes et divers modèles destinés à cerner certains de ces facteurs. Les auteurs s'en tiennent à l'un de ces modèles qu'ils prennent soin de décrire. Des études fondées sur ce modèle, ou sur une version adaptée du modèle, ont été effectuées aux États‐Unis, en Australie, en Nouvelle‐Zélande et au Royaume‐Uni. Les auteurs font état des résultats d'une étude semblable menée au Canada. L'analyse révèle qu'une relation à peu près linéaire existe entre les honoraires de vérification et l'actif total ou le chiffre d'affaires d'une société. De plus, le nombre de filiales et le niveau des stocks sont des déterminants statistiquement significatifs des honoraires de vérification dans le contexte canadien. L'importance de l'actif à l'étranger est également un déterminant significatif des honoraires de vérification pour les grandes entreprises, tandis que le montant des comptes clients est un déterminant significatif des hororaires de vérification pour les petites entreprises. Les auteurs comparent ces résultats aux résultats précédemment obtenus pour différents pays et traitent du résultat d'un contrôle relatif à la concurrence sur les prix dans le marché canadien de la vérification.

The purpose of this study is to investigate inter-temporal and cross-sectional depth patterns in an electronic, order-driven environment. Although many exchanges operate in this environment, little is known about the liquidity dynamics induced by such trading mechanisms. The findings, based on over six million observations, reveal an inverted U-shaped pattern that mirrors the commonly reported U-shaped spread pattern. An important implication is that earlier spread results understate the strength of inter-temporal liquidity variations. Cross-sectional analysis, based on adverse selection-sorted portfolios, demonstrates that corporate depth is negatively related to information asymmetry. The adverse selection impact on liquidity and cost of capital is stronger than previously believed since information costs are realized through both spreads and depths.

The purpose of this study is to investigate the relation between investor protection and firm liquidity. We posit that less protective environments lead to wider bid‐ask spreads and thinner depths because they fail to minimize information asymmetries. The Hong Kong equity market provides a unique opportunity to compare liquidity costs across distinct investor protection environments, but still within a common trading mechanism and currency. Our empirical findings verify that firm liquidity is significantly affected by investor protection. Regression and matched‐sample results show that Hong Kong‐based equities exhibit narrower spreads and thicker depths than their China‐based counterparts.

We examine search-based peer (SBP) groups proposed by Lee, Ma, and Wang (2015) and their relationship with commonality in liquidity. Our results confirm that SBP affiliation is a significant determinant of commonality in liquidity and, unlike market- and industry-commonality, SBP-commonality has been increasing over the past 15 years. We separate retail from institutional investor queries by tracing the IP locations of Electronic Data Gathering, Analysis, and Retrieval (EDGAR) searches. Our results show that retail investors are responsible for roughly 85% of the EDGAR searches that generate SBP groups. Overall, our study provides new evidence of a significant demand-side commonality associated with SBP affiliations.

We conduct a comprehensive study of commonality in liquidity using intraday spread and depth data from 47 stock exchanges. We find that firm-level changes in liquidity are significantly influenced by exchange-level changes across most of the world’s stock exchanges. Emerging Asian exchanges have exceptionally strong commonality, while those of Latin America exhibit little if any commonality. After documenting the pervasive role of commonality within individual exchanges, we examine commonality across exchanges. We find evidence of a distinct, global component in bid-ask spreads and depths. Local (exchange-level) sources of commonality represent roughly 39% of the firm’s total commonality in liquidity, while global sources contribute an additional 19%. We also investigate potential sources of exchange-level and global commonality. We show that commonality is driven by both domestic and U.S. macroeconomic announcements.

We examine the impact of block ownership on the firm’s trading activity and secondary-market liquidity. Our empirical results show that block ownership takes potential trading activity off the table relative to a diffuse ownership structure and impairs the firm’s market liquidity. These adverse liquidity effects disappear, however, once we control for trading activity. Our findings suggest that block ownership is detrimental to the firm’s market liquidity because of its adverse impact on trading activity—a real friction effect. After controlling for this real friction effect, we find little evidence that block ownership has a negative impact on informational friction. Our results suggest that the relative lack of trading, and not the threat of informed trading, explains the inverse relation between block ownership and market liquidity.

We revisit the stock market anomaly documented by Thomas and Zhang (2008) and show that the apparent mispricing of information transfers has decayed over time, as the US markets experienced rapid improvements in the efficiency of the underlying price formation processes. Utilizing recent advancements in market microstructure research to estimate firm-specific proxies for market efficiency, we demonstrate that the existence of the overreaction anomaly (where stock prices of late announcers in response to the earnings reported by early announcers in the same industry are negatively related to subsequent price responses of late announcers to their own earnings reports) is specific to an earlier sample period and results from the inefficient incorporation of information into prices, largely attributable to an environment with high barriers to arbitrage. Our results indicate that the pricing efficiency of intra-industry information transfers has increased in the recent years of increased liquidity and markedly higher trading activity.