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Off but Not Gone: A Study of Nasdaq Delistings

Author

Listed:
  • Harris, Jeffrey H.

    (US Commodity Futures Trading Commission and U of Delaware)

  • Panchapagesan, Venkatesh

    (GSAM)

  • Werner, Ingrid

    (Ohio State U)

Abstract

We examine 1,098 Nasdaq firms delisted in 1999-2002 that subsequently traded in the OTC Bulletin Board and/or the Pink Sheets. Market quality deteriorates significantly after delisting: share volume declines by two-thirds; quoted spreads almost triple from 12.1 to 33.9 percent; and effective spreads triple from 3.3 to 9.9 percent. Volatility triples from 4.4 to 14.3 percent, but quickly reverts to slightly elevated levels. Deterioration is significantly larger for more severe violations (e.g. bankruptcy) than for lesser infractions (e.g. minimum bid price). We find the OTC Bulletin Board provides a "soft landing" for delisted firms relative to the Pink Sheets. Although the delisting process takes at least 90 days, the drop in market quality is concentrated on the delisting date, highlighting the benefits of Nasdaq listing and the economic rationale for tiered listing fees. We argue that the increased costs resulting from enforcing Nasdaq's minor (non-core) listing criteria outweigh the benefits.

Suggested Citation

  • Harris, Jeffrey H. & Panchapagesan, Venkatesh & Werner, Ingrid, 2008. "Off but Not Gone: A Study of Nasdaq Delistings," Working Paper Series 2008-6, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2008-6
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    File URL: http://www.cob.ohio-state.edu/fin/dice/papers/2008/2008-6.pdf
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    References listed on IDEAS

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    1. Maghyereh, Aktham I. & Awartani, Basel, 2018. "The factors influencing the decision to list on Abu Dhabi securities exchange," Journal of Behavioral and Experimental Finance, Elsevier, vol. 19(C), pages 89-103.
    2. Thierry Foucault & Laurent Frésard, 2012. "Cross-Listing, Investment Sensitivity to Stock Price, and the Learning Hypothesis," The Review of Financial Studies, Society for Financial Studies, vol. 25(11), pages 3305-3350.
    3. Park, Jong-Ho & Binh, Ki Beom & Eom, Kyong Shik, 2016. "The effect of listing switches from a growth market to a main board: An alternative perspective," Emerging Markets Review, Elsevier, vol. 29(C), pages 246-273.
    4. Coles, Jeffrey L., 2008. "Disclosure policy: A discussion of Leuz, Triantis and Wang (2008) on "going dark"," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 209-220, August.
    5. Silvio Vismara & Stefano Paleari & Jay R. Ritter, 2012. "Europe's Second Markets for Small Companies," European Financial Management, European Financial Management Association, vol. 18(3), pages 352-388, June.
    6. Li, Yuanzhi & Zhong, Zhaodong (Ken), 2013. "Investing in Chapter 11 stocks: Trading, value, and performance," Journal of Financial Markets, Elsevier, vol. 16(1), pages 33-60.
    7. Ulf Brüggemann & Aditya Kaul & Christian Leuz & Ingrid M. Werner, 2018. "The Twilight Zone: OTC Regulatory Regimes and Market Quality," The Review of Financial Studies, Society for Financial Studies, vol. 31(3), pages 898-942.
    8. Bessler, Wolfgang & Beyenbach, Johannes & Rapp, Marc Steffen & Vendrasco, Marco, 2021. "The global financial crisis and stock market migrations: An analysis of family and non-family firms in Germany," International Review of Financial Analysis, Elsevier, vol. 74(C).
    9. Bakke, Tor-Erik & Jens, Candace E. & Whited, Toni M., 2012. "The real effects of delisting: Evidence from a regression discontinuity design," Finance Research Letters, Elsevier, vol. 9(4), pages 183-193.
    10. Ryan Davis & Todd Griffith & Brian Roseman & Serhat Yildiz, 2021. "The effects of exchange listing on market quality: Evidence from over‐the‐counter uplistings," The Financial Review, Eastern Finance Association, vol. 56(4), pages 645-669, November.
    11. Guragai, Binod, 2022. "Market response to stock exchange listing deficiency notices: Evidence from Nasdaq," Advances in accounting, Elsevier, vol. 59(C).
    12. Leuz, Christian & Triantis, Alexander & Yue Wang, Tracy, 2008. "Why do firms go dark? Causes and economic consequences of voluntary SEC deregistrations," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 181-208, August.
    13. Frost, Carol Ann & Guragai, Binod & Rapley, Eric T., 2017. "Differences in responses to accounting-based and market-based benchmarks – Evidence from Nasdaq," Advances in accounting, Elsevier, vol. 38(C), pages 46-62.
    14. Rhee, S. Ghon & Wu, Feng, 2012. "Anything wrong with breaking a buck? An empirical evaluation of NASDAQ's $1 minimum bid price maintenance criterion," Journal of Financial Markets, Elsevier, vol. 15(2), pages 258-285.
    15. Andrew Ang & Assaf A. Shtauber & Paul C. Tetlock, 2013. "Asset Pricing in the Dark: The Cross-Section of OTC Stocks," The Review of Financial Studies, Society for Financial Studies, vol. 26(12), pages 2985-3028.
    16. Davis, Ryan & Griffith, Todd & Van Ness, Bonnie & Van Ness, Robert, 2023. "Modern OTC market structure and liquidity: The tale of three tiers," Journal of Financial Markets, Elsevier, vol. 64(C).

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