The Impact of Corporate Acquisition Announcements on Bid- Ask Quotes with Competitive Market-Makers

Posted: 2 Oct 1999

See all articles by Jennifer S. Conrad

Jennifer S. Conrad

University of North Carolina at Chapel Hill; University of North Carolina Kenan-Flagler Business School

Cathy M. Niden

LECG, LLC

Gershon Mandelker

affiliation not provided to SSRN

Ahron Rosenfeld

Ben-Gurion University of the Negev - Department of Management

Kuldeep Shastri

University of Pittsburgh - Finance Group

Date Written: March 1995

Abstract

This paper examines changes in spread, trading activity and market-maker competition around acquisition announcements involving NASDAQ targets. We find a significant increase in spread immediately preceding the announcement, consistent with an increase in adverse selection costs. Targets with the fewest market-makers account for most of the observed increase in spread. The spread declines following the announcement, coinciding with the entry of significant additional market-makers. The results suggest that market- makers are less able to widen the spread in response to increased information trading when competition among them is high. We estimate a spread components model during normal non-event trading, and find a significantly smaller adverse selection component for high than low market-maker competition firms.

JEL Classification: G14, G34

Suggested Citation

Conrad, Jennifer S. and Conrad, Jennifer S. and Niden, Cathy M. and Mandelker, Gershon N. and Rosenfeld, Ahron and Shastri, Kuldeep, The Impact of Corporate Acquisition Announcements on Bid- Ask Quotes with Competitive Market-Makers (March 1995). Available at SSRN: https://ssrn.com/abstract=6243

Jennifer S. Conrad

University of North Carolina at Chapel Hill ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Cathy M. Niden (Contact Author)

LECG, LLC ( email )

1603 Orrington Ave., Suite 1500
Evanston, IL 60201
United States
847-424-1434 (Phone)

Gershon N. Mandelker

affiliation not provided to SSRN

Ahron Rosenfeld

Ben-Gurion University of the Negev - Department of Management ( email )

Beer-Sheva 84105
Israel

Kuldeep Shastri

University of Pittsburgh - Finance Group ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-1708 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~ks112354

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