MARKET REACTION TO NYSE LISTINGS: TESTS OF THE MARKETABILITY GAINS HYPOTHESIS

This study examines the market reaction to listing on the New York Stock Exchange (NYSE). The marketability gains hypothesis states that investors expect liquidity gains for the less liquid over-the-counter (OTC) stocks but not for their liquid counterparts after their listing on the NYSE. The hypothesis is supported even after accounting for other firm-specific news releases. Stocks with low liquidity on the OTC exhibit a positive reaction, whereas stocks with high liquidity show a non-positive market reaction around the announcement of the listing application. The findings imply that the two different marketplaces, NYSE and OTC, are suitable for stocks with different liquidity characteristics.     

RISK AND RETURN ON NEWLY LISTED STOCKS: THE POST-LISTING EXPERIENCE

Researchers consistently find that newly listed stocks underperform in the post-listing period. It has been suggested that this anomalous finding may, in part, be explained away if the risk during this period is lower than at other times. Evidence is presented here that the riskiness of newly listed stocks undergoes a seasoning process. Instead of lower risk, riskiness is found to be greater immediately after listing than in later periods. This suggests that the post-listing anomaly is actually worse than has been previously recognized.     

“Too‐Small‐To‐Survive” versus “Too‐Big‐To‐Fail” banks: The two sides of the same coin

In the recent crisis, the U.S. authorities bailed out numerous banks through TARP, whilst let many others to fail as going concern entities. Even though both interventions fully protect depositors, a bail out represents an implied subsidy to shareholders, which is not yet the case with closures where creditors are not subsidised. We investigate this non‐uniform policy, demonstrating that size and not performance is the decision variable that endogenously determines one threshold below which banks are treated as TSTS by regulators and another one above which are considered to be TBTF. We, hence, provide a pair of economic rather than regulatory cut‐offs for TBTF and TSTS banks. The shareholders and the other uninsured creditors of a distressed bank are not bailed out if the bank is considered to be TSTS. We further document that the less complex a bank is, the less likely is to be bailed out and, hence, to have all of its creditors protected.     

Transmission of the financial and sovereign debt crises to the EMU: Stock prices,CDS spreads and exchange rates

This paper tests for the transmission of the 2007–2010 financial and sovereign debt crises to fifteen EMU countries. We use daily data from 2003 to 2010 on country financial and non-financial stock market indexes to analyze the stock market returns for three country groups within EMU: North, South and Small. The following results hold for both the North and South European countries, while the smallest countries seem to be relatively isolated from international events. First, we find strong evidence of crisis transmission to European non-financials from US non-financials, but not for financials. Second, in order to test how the sovereign debt crisis affects stock market developments we split the crisis in pre- and post-Lehman sub periods. Results show that financials become significantly more dependent on changes in the difference between the Greek and German CDS spreads after Lehman’s collapse, compared to the pre-Lehman sub period. However, this increase is much smaller for non-financials. Third, before the crisis euro appreciations coincide with European stock market decreases, whereas this relationship reverses during the crisis. Finally, this reversal seems to be triggered by Lehman’s collapse.     

The 2007–2009 financial crisis: changing market dynamics and the impact of credit supply and aggregate demand sensitivity

This article singles out the determinants of changes in US firms’ systematic risk and idiosyncratic return induced by the 2007–2009 financial crisis. After establishing that systematic risk changes during the crisis, the results show that higher operational and financial leverage coincide with an increase in systematic risk, while high cash availability is associated with a decrease in systematic risk. The crisis-induced idiosyncratic return worsens with increasing financial leverage, higher sensitivity to aggregate demand shocks and banking sector problems, and lower operational leverage. Additional results show that the aforementioned variables have economically large effects on firm performance during the crisis.     

THE INFORMATIONAL VALUE OF LISTING ON THE NEW YORK STOCK EXCHANGE

In this paper, the authors test market reaction to the listing of a stock on the New York Stock Exchange independently from other attendant news and test the hypothesis that listing has different informational value for stocks that have performed differently in the prelisting period. Their findings support the argument that listing conveys positive information. Listing is observed to be of most value for firms with ambiguous earnings performance.