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Thinly Traded Growth Stocks: A Joint Examination of Transparency in Communication and the Trading Platform

Gietzmann, M. and Raonic, I. (2013). Thinly Traded Growth Stocks: A Joint Examination of Transparency in Communication and the Trading Platform. European Accounting Review, 23(2), pp. 257-289. doi: 10.1080/09638180.2013.768802


When thinly traded growth stocks (TTGS) listed on a secondary exchange experience difficulty in gaining investors' attention, one possible solution is to increase the intensity of disclosure. However, if the stock is traded on a quote-driven system, market makers can collude to maintain wide bid-ask spreads that discourage firms from disclosing. As a result, TTGS traded on a quote-driven system can face a liquidity trap that can prevent them from harvesting the benefits of increased disclosure activities. In this paper, we argue that the well-documented negative relation between disclosure and the bid-ask spread is likely to be moderated by the type of protocol chosen by exchanges to handle the trading of TTGS. To test our theory we use a unique setting created by the introduction of a hybrid order-driven protocol for TTGS in the UK. Following an increase in the disclosure activity by a TTGS, we find that the magnitudes of the predicted reductions in the bid-ask spreads are dependent on whether the TTGS switch their trading protocols. © 2013 © 2013 European Accounting Association.

Publication Type: Article
Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in European Accounting Review on 20 March 2013, available online:
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
Date available in CRO: 28 Jul 2016 10:51
Date deposited: 27 July 2016
Date of acceptance: 1 November 2012
Date of first online publication: 20 March 2013
Text - Accepted Version
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