The Impact of Mandated Cash Flow Disclosure on Bid-Ask Spreads

6 Pages Posted: 27 Mar 2006

See all articles by Alex Frino

Alex Frino

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Stewart Jones

University of Sydney – School of Business

Abstract

This study provides evidence that mandatory cash flow disclosure required by Approved Australian Accounting Standard AASB 1026, Statement of Cash Flows (June 1992) was associated with a decline in bid-ask spreads following the introduction of the regulation, even after controlling for changes in trading volume and price volatility. More pronounced decreases in bid-ask spreads were associated with firms having lower correlations between reported CFO and estimates of CFO using balance sheet reconstructions. We conclude that mandatory cash flow disclosure reduces information asymmetry across market participants.

Suggested Citation

Frino, Alex and Jones, Stewart, The Impact of Mandated Cash Flow Disclosure on Bid-Ask Spreads. Journal of Business Finance & Accounting, Vol. 32, No. 7-8, pp. 1373-1396, September 2005. Available at SSRN: https://ssrn.com/abstract=877427 or http://dx.doi.org/10.1111/j.0306-686X.2005.00632.x

Alex Frino

The University of Sydney - Discipline of Finance ( email )

Futures Research Centre
P.O. Box H58
Sydney NSW
Australia
+61 2 9299 1809 (Phone)
+61 2 9299 1830 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Stewart Jones (Contact Author)

University of Sydney – School of Business ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

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