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 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 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 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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