An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Jongmoo Jay Choi
Temple University

Heibatollah Sami
Lehigh University

Haiyan Zhou
University of Texas - Pan American

Abstract: The nature of information is important as a determinant of the bid-ask spread, while equity ownership may influence the degree of information asymmetry. This paper examines the impact of ownership structure on the bid-ask spread in emerging markets of China. The results indicate that bid-ask spread is positively associated with insider, institutional, and block holdings, consistent with a view that both inside and outside investors have potential governance contributions. However, the impact of foreign ownership could be two-fold: while the existence of foreign investors helps reduce adverse selection by insiders and institutions, the dominating status of foreign ownership could increase information asymmetry perceived by market participants. State ownership, further, increases information asymmetry. Finally, the factor analysis indicates that information asymmetry is positively associated with the level of adverse selection reflected in ownership structure.

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