Jain, Pankaj K.

, and Jang-Chul Kim, 2006,

Investor recognition, liquidity, returns, and

performance after exchange listings in the
reformed markets,
Financial Management 35, 2, 21-42.

NYSE

versus

Nasdaq

Industrial Organization View:

Quite a transformation!
Tick Size reduction: Teenies
SEC Order Handling Rules: Limit Order Recognition and
Competition on Nasdaq

Decimalization
Ever growing ECN competition at Nasdaq: Speedier execution
Nasdaqs super montage
NYSE Direct + : Fast order submission and cancellation
NYSE Openbook

NYSEs enhanced continued listing standards

11AC-5 market quality disclosures by market centers

Literature Review

To List ..OR

Better liquidity and

lower trading costs

Christie & Huang

Weston ( JF 2000),
(1994), Barclay (1997), Nasdaq (2001, 2003),
Bessembinder (1998)
Sapp and Yan (2001)

Transparency and
Information,
Competition

Beneviste et al (1992):
Repeated face to face
interaction = reputation
Jain et al (2003) L.S.E.
Ellul et al(2003) SOD

Investor Recognition Barclay, Kandel, &

Marx (1998),
Kadlec and McConnell
(1994)
Merton (1987)
Ohara et al (2002, 2003) Chiyachantana et al
(2004a JF, 2004b)
Amihud et al (1986, 97)

Valuation Effects

Not to List

Limit order book hidden;

Front running Chung and
Postelnicu (2003)
Multiple Market Makers

Listing Standards/
Signaling
Domowitz & Stiel
(2001), Jain (2003),
Constantinides (1986),
Vayanos (1998) 2nd order

Corporate Stories
"Pilgrim's listing on the NYSE is a major milestone in the history of our
company. Shareholders will benefit from the enhanced liquidity and more
effective trading typical on the NYSE.
Remington Oil Inc., stated, "Listing on the NYSE, the world's premiere
marketplace, should benefit our shareholders through increased liquidity,
better stability in pricing, choice of execution methods, and NYSE's
investor priority ensuring trades are processed in the order received.
"Trading on the NYSE will enable Sovereign Bank to focus on delivering
above average returns for shareholders over the long term and help us stay
focused on our five-point plan, Today marks a great victory for the
Sovereign team."
Nasdaq Applauds Decision of Aeroflex Board to Switch from NYSE; First
'NYSE-Eligible' Company to Voluntarily Leave The Exchange Since 1939.
(Rule 500 responsible for most part)

Listing Standards and Fees: Some Examples

Exchange
Website (Source)

NYSE

Nasdaq

Amex

www.nyse.com/listed/1022221392217.html
www.nasdaq.com/about/listing_information.stm
www.amex.com/equities/howToLst/Eq_HTL_ListStandards.ht
ml

Listing Standard Examples

Market Capitalization
(Public float)

$ 50 million

$ 8 million

$ 3 million

Earnings

$2,500,000

$1,000,000

$ 750,000

Price

--

$5

$3

Number of shareholders

2000

--

800

Publicly held shares

1,100,000

1,000,000

500,000

Minimum Fee

$150,000

$100,000

$35,000

Maximum Fee

$250,000

$150,000

$65,000

Listing Fee

Hypotheses:

1.

H10 : Liquidity benefits result from switching exchanges

from Nasdaq to NYSE even now. The magnitude of such
benefits is proportion to the level of quoted spreads on
Nasdaq.

2.

H20 : Greater investor recognition still results from

switching exchanges.

3.

H30 : There is a positive price reaction when firms switch

exchanges from Nasdaq to NYSE. The magnitude of such
benefits is proportion to the level of quoted spreads on
Nasdaq. These benefits are associated with greater investor
recognition and improvements in liquidity.

4.

H40: These changes upon switching exchanges are over and

above those resulting from changes in firms trading
characteristics. Market structure matters!

Sample Selection and Empirics

Data:

Firms that switched exchanges during the calendar year from

1999 to 2002 identified from the CRSP database
Proportion of institutional ownership and the number of
shareholders from Compact Disclosure (Recognition)
Spreads, depths, volumes from TAQ

Methodology:
Event Study before & after switch; pre & post decimals
Matched Control Sample
Variable

Share Price

Market Value
Ave. Daily
$ Volume

Stock

Mean

Std. Dev.

Min

P25th%

P50th%

P75th%

Max

Sample

24.28

9.46

6.54

16.59

24.88

29.06

58.51

Control

24.50

9.79

5.98

16.70

25.00

29.02

49.23

Sample

1,484,753

1,690,463

60,294

341,517

904,503

1,561,000

8,157,488

Control

1,466,848

1,893,428

116,804

369,370

866,493

1,662,005

11,954,921

Sample

1,264,139

4,273,130

6,542

79,222

273,548

888,765

30,812,617

Control

1,143,488

3,682,331

6,139

75,474

276,960

858,243

26,651,928

2SLS estimation of Simultaneous System of Equations

Logistic Regressions

Month

D
e
ce
i
m
a
l

15
0

10
-5

-10

5
-15

0
-20

S & P Returns

R
e
f
o
r
m

200201

200101

200001

199901

25

199801

199701

199601

199501

199401

199301

Number of Listings

Switching Activity from Nasdaq to NYSE

15

10

20
5

Table 1. Exchange Switching Activity

Before reforms
1993-1996
# of
Firms

Nasdaq
230
to NYSE
NYSE to
Nasdaq

Before decimalization
1999-2000

After reforms
2001-2002

CAR
Announce
CAR
Announce
Announce
# of
# of CAR when
when
to
when
to
to
Firms
Firms Announce
Announce Implement
Announce Implement
Implement
1.24
(3.90***)

2.02
(3.56***)

70

1.71
(2.28**)

2.92
(2.34**)

72

1.15
(2.13**)

2.95
(2.25**)

-1.16
(-0.23)

-2.79
(-0.34)

-1.24
(-0.74)

-3.21
(-0.61)

-4.83

-20.34

A Historical Perspective from 1966 to 1990

Sample Period

CAR Announce

Sanger &
McConnell (1986)

1966-1970

1.92%

1971-1977

0.64%

Kadlec and
McConnell (1994)

1980-1982

1.9%

1982-1989

1.6%

 Quoted and effective spreads; pre and post decimals

0.6
Sample Firms
Control Firms
0.5

Reforms

0.3

0.2

Decimalization
Switch
Switch

0.1

Switch
0
-40
-36
-32
-28
-24
-20
-16
-12
-8
-4
0
4
8
12
16
20
24
28
32
36
40
-38
-34
-30
-26
-22
-18
-14
-10
-6
-2
2
6
10
14
18
22
26
30
34
38
-40
-36
-32
-28
-24
-20
-16
-12
-8
-4
0
4
8
12
16
20
24
28
32
36
40

Spread (dollars)

0.4

Pre-reforms period

Trading Day Relative to Switch Date

Pre-decimalization period

Post-reforms period

Institutional Ownership and CARs

70

40

30
Sample
Control
20

10

% Institutional Ownership

% Institutional Ownership

50

60
50
40

Sample

30

Control

20
10
0

0
Before Sw itch

After Sw itch

Before Switch

Before Decimalization

After Reforms
0.025

0.02
Sample

0.02

Control

0.015

After Switch

Sample
Control

0.015
0.01

0.005

CAR

CAR

0.01

0
-15

-12

-9

-6

-3

12

15

0.005
0
-0.005 -15

-12

-9

-6

-3

-0.005

-0.01
-0.01

-0.015
-0.02

-0.015
Relative to Announcem ent Dates

Relative to Announcem ent Dates

12

15

Table III. Changes in Liquidity and Investor Recognition upon Listing

Before reforms
1993-1996

Period
Investor
Recognition

After reforms
2001-2002

Before
Switch

After
Difference
Switch

Before
Switch

After
Switch

Difference

Before
Switch

After
Switch

Difference

37.39

44.18

6.79***

45.59

55.80

10.21***

47.16

62.40

15.24***

2,707

3,045

338***

5,929

6,261

332**

5,145

5,319

174*

Quoted
Spreads

48.51

22.35

-26.16***

29.77

18.23

-11.54***

11.28

7.22

-4.06***

% Quoted

2.30

1.14

-1.16***

1.03

0.67

-0.35***

0.49

0.36

-0.13***

Effective

39.32

17.82

21.49 ***

22.99

13.86

-9.12***

7.98

4.97

-3.01***

VW Effective

35.65

18.99

-16.66***

20.66

15.93

-4.73***

7.33

6.02

-1.31**

% Effective

1.86

0.92

-0.94***

0.79

0.52

-0.27***

0.35

0.25

-0.10***

Depth

19.24

86.20

66.96***

16.78

61.09

44.31***

12.25

28.68

16.43***

Intra-day
Volatility

0.0051

0.0037 -0.0014*** 0.0027

0.0021

-0.0006***

0.00110

% Inst.
Ownership
# of
shareholders

All
firms

Before decimalization
1999-2000

0.00097 -0.00017**

Before reforms
1993-1996

Before decimalization
1999-2000

After reforms
2001-2002

Quoted

51.64

23.05

-28.59***

42.85

21.24

-21.61***

16.24

8.48

-7.76***

Effective

40.56

18.41

-22.15***

32.44

16.51

-15.93***

11.67

5.72

-5.94***

Depth

18.72

67.42

48.70***

14.64

36.56

21.92***

11.56

24.52

12.96***

Quoted

49.57

22.63

-26.95***

26.46

17.88

-8.58***

11.37

7.44

-3.94***

Medium
Effective 40.61
firms

18.09

-22.53***

20.45

13.50

-6.95***

7.89

5.20

-2.69***

Small
firms

Large
firms

Depth

19.60

77.40

57.80***

15.16

48.16

33.01***

10.85

24.92

14.06***

Quoted

44.28

21.37

-22.91***

20.44

15.69

-4.75*

6.47

5.82

-0.65

Effective

36.74

16.96

-19.78***

16.38

11.69

-4.69**

4.57

4.04

-0.52

Depth

19.42

114.15

94.73***

20.37

96.84

76.47***

14.23

36.19

21.96***

Trade Size Analysis for Effective Spreads

Before reforms
1993-1996

Period

%
Effective
Spread
Volume
Weighted
%
Effective
Spread

After reforms
2001-2002

Trade Size

Before
Switch

After
Before
Difference
Switch
Switch

After
Switch

Difference

<500

44.20

17.05

-27.16***

24.42

12.40

-12.03***

8.15

4.57

-3.58***

40.16

17.99

-22.17***

22.27

14.05

-8.22***

7.59

5.29

-2.30***

36.52

18.59

-17.94***

20.48

15.25

-5.23***

7.04

6.01

-1.03**

33.33

18.07

-15.26***

18.81

16.09

-2.73*

6.44

6.40

-0.06

>=10000

32.64

18.85

-13.80***

18.90

15.93

-2.97*

5.70

6.66

0.95*

<500

35.67

19.16

-16.51***

24.21

12.61

-11.60***

8.10

4.67

-3.43***

500-999

32.22

19.33

-12.88***

22.22

14.03

-8.19***

7.59

5.30

-2.29***

1000-4999

29.69

19.33

-10.36***

20.56

15.62

-4.94***

6.98

6.29

-0.69*

5000-9999

27.27

19.17

-8.10***

18.71

16.31

-2.40*

6.50

6.45

-0.04

>=10000

27.03

20.13

-6.90***

18.47

16.93

-1.54

5.47

6.78

1.31**

<500

2.09

0.89

-1.20***

0.83

0.45

-0.37***

0.36

0.22

-0.13***

500-999

1.92

0.93

-1.00***

0.77

0.51

-0.26***

0.34

0.26

-0.08***

1000-4999

1.74

0.96

-0.78***

0.70

0.56

-0.14***

0.31

0.29

-0.02

5000-9999

1.62

0.94

-0.67***

0.65

0.58

-0.06

0.28

0.31

0.03

>=10000

1.64

1.01

-0.62***

0.69

0.59

-0.10

0.26

0.33

0.07***

<500

2.47

1.59

-0.88***

0.82

0.46

-0.36***

0.36

0.23

-0.13***

500-999

2.38

1.56

-0.82***

0.77

0.51

-0.26***

0.34

0.26

-0.08***

1000-4999

2.20

1.55

-0.65***

0.69

0.58

-0.12***

0.31

0.30

-0.01

5000-9999

1.96

1.57

-0.39***

0.64

0.58

-0.06

0.28

0.31

0.02

>=10000

1.84

1.52

-0.32***

0.69

0.62

-0.06

0.25

0.34

0.09***

Equal
500-999
Weighted
1000-4999
Effective
5000-9999
Spread
Volume
Weighted
Effective
Spread

Before decimalization
1999-2000

Before After
Switch Switch

Difference

Nasdaq versus AMEX

Before reforms
1993-1996

Period
Measures

Before
Switch

After
Switch

Difference

Before decimalization
1999-2000
Before
Switch

After
Switch

After reforms
2001-2002

Difference

Before
Switch

After
Switch

Difference

Nasdaq to AMEX
Quoted

49.77

19.80

-29.97***

27.73

18.09

-9.64**

26.76

12.38

-14.38

% Quoted

6.19

2.85

-3.35***

5.60

4.74

-0.86**

2.87

1.73

-1.14

Effective
Spread

37.25

17.46

-19.79***

21.59

15.51

-6.08*

16.52

9.80

-6.72

% Effective

4.69

2.51

-2.18***

4.37

4.08

-0.29

1.83

1.33

-0.50

AMEX to Nasdaq
Quoted

19.70

39.54

19.84***

27.60

32.41

4.80

13.17

15.90

2.73*

% Quoted

2.45

4.22

1.77***

1.44

2.02

0.57***

1.17

1.32

0.15

Effective
Spread

17.18

32.34

15.16***

22.71

24.40

1.67

10.26

11.54

1.28

% Effective

2.12

3.42

1.29***

1.21

1.54

0.33**

0.89

0.96

0.07

Simultaneous system of equations

estimated using 2SLS regressions
CARi = a0 + a1Investor Recognitioni + a2Liquidityi + i
Investor Recognitioni = b0NYSE listing + b1Liquidityi +
+b2Annual Returnit + b3 logMVi + b4 R&Di+
+ b5 Advertisei + b6Age + i,

Liquidityi = c0NYSE listing + c1 logVi + c2 i2 +

+c3 logMVi + c4 logPi + c5 logNi + i

Table VI. Improved Stock Price Valuation:

Liquidity or Investor Recognition?
Endogenous CAR
Instruments
Intercept

Entire
Sample
-0.0017

Before
reforms
1993-1996

Before
After reforms
decimalization
2001-2002
1999-2000

-0.0029

-0.0065

-0.0133*

Spread

-0.0141

-0.0126

0.0417

-0.1011*

Institutional
Ownership

0.1258*

0.1743*

0.2422*

0.0826*

306

201

55

50

Table VIII. Logit Regression: Why dont eligible firms list?

Mean of
Variable

Std. Dev. of
Variable

in Probability per
Std. Dev.

0.0052

15.35

12.23

6.79%

-0.0275**

0.0034

12.97

45.21

-24.37%

Institutional Holding (percent)

-0.7145**

0.2069

39.61

30.33

-5.21%

Market Capitalization (billions)

0.0614**

0.0089

4.79

21.86

26.43%

Oil

0.6417

0.4833

2.91%

Food

-0.2632

0.4557

-1.00%

Pharmaceuticals

-0.5270

0.3023

-2.75%

Computers and Machinery

-0.8011**

0.2970

-3.88%

Electronics

-1.6763**

0.2297

-9.39%

Transportation

-1.1515**

0.2818

-5.33%

Instrumentation

-1.3842**

0.3017

-5.46%

Telecommunication

-0.5193

0.3279

-2.29%

Utility

0.5012

0.4833

2.67%

Wholesale

-0.6835*

0.3358

-2.87%

Retail

-1.1850**

0.2582

-5.83%

Banks and Financial Services

-2.0435**

0.2041

-12.96%

0.0537

0.4018

0.24%

Holding Companies

0.9132**

0.2933

8.82%

Information Technology

-1.7864**

0.2322

-9.48%

Healthcare

-0.2082

0.5590

-0.54%

Consulting

-1.4617**

0.4262

-3.54%

Parameter

Estimate

Standard Error

Intercept

2.6211**

0.1863

Firm Age (years)

0.0237**

Monthly Volume (millions)

Industry Dummies

Insurance

Conclusions and Future Research

Listing continues to be beneficial: improves investor
recognition and stock prices
CAR related more to investor recognition, liquidity changes are
not significant
Very large firms do not gain as much

Eligible unlisted firms are mainly in financial/ infotech

industry and already have high volumes and recognition
Firms switch after outperforming the market in the five years
before listing but this exuberance dies down after listing
Future research: Global listing effect?