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This paper examines the relationship between liquidity and quality of financial information by analyzing long-term trends in Amihud's (2002) illiquidity measure for firms that restate financial statements. I find that for most income decreasing restatements illiquidity increases several months before restatement announcement and remains at elevated levels one year after restatement. The result is most pronounced for firms listed on NASDAQ. Increase in illiquidity is greater upon restatements due to revenue recognition, those prompted by party other than auditor, those made by larger firms with high volatility of returns and low price levels. Income increasing restatements do not affect information asymmetry of the firm. Overall, my results indicate a positive relationship between quality of financial information and liquidity.


Copyright 2011 Elsevier, Review of Financial Economics

NOTICE: this is the author’s version of a work that was accepted for publication in Review of Financial Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Review of Financial Economics, [20, 2, 2011] DOI: 10.1016/j.rfe.2011.01.001

Publication Title

Review of Financial Economics

Published Citation

Bardos, Katsiaryna Salavei. 2011. Quality of financial information and liquidity. Review of Financial Economics 20 (2), 49-62.



Peer Reviewed