Evaluating Proposed Financial Transparency Model Based on Liquidity Risk of Stock

Despite the importance of transparency, a generally accepted definition of transparency has not been provided yet. Several methods for the measurement of transparency have been used that resulted in different justifications in the measurement. In this study, to assess the transparency and quality of company's disclosure, we proposed a model by reference to theoretical studies and the respected literature, as well as environmental properties of the country.
To examine validity of the model, a questionnaire was designed, and based on experts’ analysis, all the parameters of the model were verified. Then, the model for the negative relationship between transparency and liquidity risk of stocks was examined, and compared with the disclosure score of the Stock Exchange. To assess liquidity risk, we used daily price impact measures of the stocks and the resulted indicators for them. The findings showed that there is significant negative relationship between the proposed financial reporting transparency and liquidity risk indicators, while the relationship between the score of disclosure of the Stock Exchange and these variables are not meaningful.