TRADING OF NASDAQ STOCKS ON THE CHICAGO STOCK EXCHANGE

We use a linear programming model to form two portfolios with approximately equal levels of attributes such as financial leverage. One portfolio comprises stocks that trade exclusively on NASDAQ and the other, stocks that trade on both the Chicago Stock Exchange (CSE) and NASDAQ (CSE/NASDAQ). We find that spreads are lower for the CSE/NASDAQ portfolio, but so is the percentage of quotes at spreads of $0.125. In fact, the lower spreads observed for the CSE/NASDAQ portfolio arise from fewer quotes with spreads of more than $0.25.     

THE EFFECT OF THE TRADING SYSTEM ON IPO UNDERPRICING: EVIDENCE FROM THE 1997 ORDER‐HANDLING RULES

We use a natural experiment resulting from the 1997 Securities and Exchange Commission rule mandating a change in the order‐handling rules (OHR) for all NASDAQ stocks to test whether secondary market structure affects initial public offering (IPO) underpricing. We find that the increase in liquidity that the OHR represent led to a decrease in underpricing for cold NASDAQ IPOs, suggesting that when liquidity is lowest, changes in market liquidity display a negative relation to initial returns.     

THE EFFECT OF THE DISTRIBUTION OF CASES ON JUDGMENTAL CONSENSUS

This paper examines the effect of the distribution of cases on the level of consensus of auditor judgments by the use of a simulation study. The results show that the level of consensus is higher on extreme cases and that overall levels of consensus are affected by the distribution of cases included in a study. Some additional insights into previous research are made and some suggestions for the design of future studies are outlined.     

THE EFFECT OF EDUCATION ON THE AUDIT EXPECTATION GAP

This paper examines the effect of education on students' perceptions of the meaning of audit reports and the responsibilities and duties of auditors. A research instrument, utilising semantic differential scales designed to measure the messages communicated through audit reports, was administered to two groups of undergraduate students at the beginning and end of a semester and to auditors. The experimental group consisted of final year undergraduate accounting students enrolled in their first auditing unit. The control group consisted of final year undergraduate marketing students not enrolled in the auditing unit. The results of the study suggest that education may be an effective approach to narrowing or eliminating the audit expectation gap.     

THE IMPACT OF MARKET MAKER CONCENTRATION ON ADVERSE‐SELECTION COSTS FOR NASDAQ STOCKS

We examine the impact of market maker concentration on adverse‐selection costs for NASDAQ stocks and find that more market makers results in lower costs. Furthermore, this reduction in adverse selection exceeds the overall reduction in spreads that is attributable to market maker competition. We hypothesize that order flow internalization is increasing in market makers and allows for greater information production, and is an explanation for our findings. Our results provide an explanation for the puzzle documented by previous work that finds that adverse‐selection costs for NASDAQ tend to be lower than for the New York Stock Exchange, whereas spreads tend to be higher.     

THE EFFECT OF TAX PREFERENCES ON HEALTH SPENDING

In this paper, we estimate the effect of the tax preference for health insurance on health care spending using data from the Medical Expenditure Panel Surveys from 1996-2005. We use the fact that Social Security taxes are only levied on earnings below a statutory threshold to identify the impact of the tax preference. Because employer-sponsored health insurance premiums are excluded from Social Security payroll taxes, workers who earn just below the Social Security tax threshold receive a larger tax preference for health insurance than workers who earn just above it. We find a significant effect of the tax preference, consistent with previous research.     

THE EFFECT OF PAYMENT DELAYS ON STOCK PRICES

In this paper stock returns are modeled as a function of payment delays. Three hypotheses are tested: (1) that buyers compensate sellers for a six-business-day payment delay; (2) that the rate of compensation is the riskless rate; and (3) that this delay is solely responsible for day-of-the-week effects. Results support the first and second hypotheses, but not the third. The coefficient on the variable that controls for payment delays is correctly signed and statistically significant. It is the correct size in all periods but one. However, the estimated rate of compensation probably differs across days of the week. Finally, controlling for a six-business-day payment delay fails to eliminate the weekly pricing pattern.     

THE EFFECT OF SELF-TENDER OFFERS ON EARNINGS EXPECTATIONS

We examine financial analysts' earnings revisions after self-tender offers. Consistent with the assertions of earlier studies that self-tender offers signal future performance, financial analysts significantly increase their forecasts of earnings for firms that announce self-tender offers. However, the revisions differ based on the method chosen to repurchase shares. For Dutch auction offers, analysts significantly revise their estimates of short-term earnings only. For fixed-price tender offers, analysts increase both short-term and long-term earnings estimates. Also, long-term earnings revisions are significantly related to announcement-period abnormal returns for fixed-price tender offers, which suggests that fixed-price self-tender offers convey more positive information about future earnings than do Dutch auction offers.     

THE EFFECT OF INSTITUTIONAL INTEREST ON THE INFORMATION CONTENT OF DIVIDEND-CHANGE ANNOUNCEMENTS

We test the hypothesis that the information content of dividend-change announcements, as reflected in stock prices, is directly related to the degree of pre-announcement information asymmetry in the stock. The dividend-change announcements include initiations, large increases, large decreases, and omissions. Information asymmetry is proxied by the proportion of stock held by institutions. Consistent with the hypothesis, we document a significantly positive relation between the absolute values of the announcement-period excess returns and the degree of pre-announcement information asymmetry in the stock. This finding appears to hold for all types of dividend changes except dividend omissions.     

THE EFFECT OF THE WPPSS CRISIS ON THE TAX-EXEMPT BOND MARKET

The 1983 default of the Washington Public Power Supply System (WPPSS) was the largest municipal default. Some writers contend that the default affected the entire municipal bond market. This study examines the effect of key WPPSS-related events on the general municipal market, tax-exempt public power district bonds, and WPPSS bonds, respectively. The results show that although certain events significantly affected all WPPSS bonds, these events did not affect the general municipal bond market or non-WPPSS public power bonds. The use of a standard event-time methodology with daily bond prices (as opposed to monthly yields) appears to provide a more powerful test of the effect of a municipal crisis on the tax-exempt bond market.