Market Liquidity, Analysts Coverage, and Ownership Concentration: Evidence From ASE

Abstract

This research investigates the association between analyst coverage, ownership concentration and market liquidity in Amman Stock Exchange (ASE). Using a unique dataset about information asymmetry, several proxies related to the information asymmetry are used to clarify certain aspects of market liquidity. In a sample of 131 companies with comprehensive data collected from company guides and Datastream, information asymmetry measured by analysts’ coverage is found to be an important determinant of market liquidity. In particular, market liquidity is lower where firms have larger analysts coverage and where firms are denoted with high degree of ownership concentration. The effect of analysts coverage is, however, found to be more marked in firms with high levels of ownership concentration. The study provides theoretical and empirical improvement of market liquidity literature towards an understanding of the information asymmetry proxies in ASE. Policymakers, after the 2007-2009 scandal have formed governance codes that highlight the importance of disclosure requirements as key responsibility of financial analysts. The link between analysts coverage and market liquidity established in this research provides evidence for insider investors on the roles and potential effectiveness of analysts in carrying this responsibility.