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From Pink Slips to Pink Sheets: Liquidity and Shareholder Wealth Consequences of Nasdaq Delistings

Author

Listed:
  • Angel, James J.

    (Georgetown U)

  • Harris, Jeffrey H.

    (U of Delaware)

  • Panchapagesan, Venkatesh

    (Washington U-St Louis)

  • Werner, Ingrid

    (Ohio State U)

Abstract

If liquidity is priced, as suggested by Amihud and Mendelson (1986) and Acharya and Pedersen (2004), shareholders of firms that experience drastic declines in liquidity should experience a significant decline in their wealth. We first hypothesize and confirm that an involuntary delisting is associated with a large decline in liquidity. The deterioration in liquidity is significant: share volume declines by two-thirds; quoted spreads almost triple from 12.1 to 33.6 percent; effective spreads triple from 3.3 to 9.9 percent; and volatility more than triples from 4.4 to 14.3 percent. We then hypothesize and confirm that this liquidity decline is associated with a significant loss of shareholder wealth. Shareholders in our sample experience a wealth-loss of 19 percent on average due to delisting. We further test and find that the decline in liquidity and loss in shareholder wealth are related to the severity of the listing violation and to how far down the market hierarchy the firm is pushed during delisting.

Suggested Citation

  • Angel, James J. & Harris, Jeffrey H. & Panchapagesan, Venkatesh & Werner, Ingrid, 2004. "From Pink Slips to Pink Sheets: Liquidity and Shareholder Wealth Consequences of Nasdaq Delistings," Working Paper Series 2004-22, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  • Handle: RePEc:ecl:ohidic:2004-22
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    References listed on IDEAS

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    Cited by:

    1. Daugherty, Mary & Georgieva, Dobrina, 2011. "Foreign cultures, Sarbanes-Oxley Act and cross-delisting," Journal of Multinational Financial Management, Elsevier, vol. 21(4), pages 208-223, October.
    2. Bollen, Nicolas P.B. & Christie, William G., 2009. "Market microstructure of the Pink Sheets," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1326-1339, July.

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