ABSTRACT
The study aims to examine the effect of risk disclosure quality on shares’ liquidity. Using samples of 397 firm years of companies listed in the Indonesia Stock Exchange during the 2011–2012 periods, empirical evidence of this study confirms the argument that mandatory risk disclosure quality has a positive effect on shares’ liquidity only for the moderately thin shares’ group of firms. This result has the implication that the moderately thin shares’ group of firms may be a group of firms that are rarely followed by analysts, so risk information disclosed on annual reports is the only information they can access, which decreases information asymmetry among investors, motivates investors to trade, thereby increasing shares’ liquidity. This study also contributes to the methodology development by using four indicators of the quality of risk disclosure, namely: relative quantity, coverage, the depth, and outlook profile of risk management.
