Impact of Financial Reporting Quality on Liquidity Synchronization: Evidence from BRICS Countries

Abstract

The main objective of the current study is to examine the relationship between financial reporting quality and liquidity synchronization within the BRICS countries. The BRICS countries include Brazil, Russia, India, China, and South Africa. When firms maintain high financial reporting quality, transparency improves, information asymmetry decreases, market efficiency increases, and ultimately both firm-level liquidity and overall market performance improve. This study uses panel data from 2012 to 2023, covering publicly listed firms in the BRICS countries. The Fully Modified Ordinary Least Squares (FMOLS) technique is employed to examine the relationship between financial reporting quality and liquidity synchronization. Liquidity synchronization refers to the extent to which an individual stock moves in tandem with overall market movements. Financial reporting quality is measured using accrual-based and earnings quality measures. The results indicate that firms with higher financial reporting quality exhibit lower liquidity synchronization. This suggests that firm-specific information is incorporated into prices more efficiently, thereby reducing the co-movement of individual stocks with the broader market. This study contributes to the literature by linking financial reporting quality to market microstructure in emerging economies. It also provides valuable implications for policymakers, regulators, and investors to enhance market stability and efficiency within the BRICS countries.