When Do Listed Firms Pay for Market Making in Their Own Stock?

A recent innovation in the equity markets is the introduction of market maker services procured by the listed companies themselves. Using data from the Oslo Stock Exchange, we investigate what motivates issuing firms to pay to improve the secondary market liquidity of their listed shares. By examini...

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Bibliographic Details
Published in:Financial management 2015-06, Vol.44 (2), p.241-266
Main Authors: Skjeltorp, Johannes Atle, Ødegaard, Bernt Arne
Format: Article
Language:English
Subjects:
Analysis
Business enterprises
Capital market
Capital markets
Data analysis
Equity
Innovation
Liquidity
Liquidity (Finance)
Securities
Stock exchange
Stock exchanges
Stocks
Studies
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Summary:A recent innovation in the equity markets is the introduction of market maker services procured by the listed companies themselves. Using data from the Oslo Stock Exchange, we investigate what motivates issuing firms to pay to improve the secondary market liquidity of their listed shares. By examining the timing of market maker hirings relative to corporate events, we show that hirings are more likely when the firm will interact with the capital markets in the near future. Futhermore, a typical firm employing a designated market maker is more likely to raise capital, repurchase shares, or experience an exit by insiders.
ISSN:0046-3892
1755-053X
DOI:10.1111/fima.12058