The Effect of Stock Liquidity on Stock Price Informativeness and Accruals-Based Earnings Management in Companies Listed in Tehran Stock Exchange

Many researchers believe that stock liquidity can increase stock price efficiency by encouraging market participants to obtain confidential information about the company. So, in this research inspired by CKSS model we investigate the impact of stock liquidity on stock price informativeness. Regarding the impact that stock liquidity can have on stock price informativeness, it is able (by increasing aware investors) to reduce the managers` ability and motivation in earnings management (especially through accruals). Thus, the other purpose of this research is to investigate the impact of stock liquidity on earnings management through accruals. Based on what was stated, two research hypothesis were proposed and tested by the data of 80 companies listed in Tehran Stock Exchange between 2003 to 2012 (with regard to their panel structure). The results indicate that stock liquidity increase will increase the stock price informativeness, and will decrease the earnings management through accruals.