Liquidity and firm characteristics: Evidence from mergers and acquisitions

We explore factors affecting liquidity by examining the relation between liquidity changes and changes in firm characteristics around mergers and acquisitions. We find that spreads decline as the number of analysts, number of shareholders, number of market makers, firm size, and volume increase or as volatility decreases. Increased volume and firm size, and decreased volatility, are associated with increased depth. We find no evidence diversifying and non-diversifying mergers affect liquidity differently. We note that mergers and acquisitions are associated with reductions, on average, in spreads but that the reductions are fully explained by the accompanying changes in firm characteristics.