Off But Not Gone: A Study of Nasdaq Delistings
Jeffrey H. Harris
The Goldman Sachs Group, Inc.
Ingrid M. Werner
The Ohio State University - Fisher College of Business
March 4, 2008
Fisher College of Business Working Paper No. 2008-03-005 and Dice Center Working Paper No. 2008-6
We examine 1,098 Nasdaq firms delisted in 1999-2002 that subsequently traded in the OTC Bulletin Board and/or the Pink Sheets. Market quality deteriorates significantly after delisting: share volume declines by two-thirds; quoted spreads almost triple from 12.1 to 33.9 percent; and effective spreads triple from 3.3 to 9.9 percent. Volatility triples from 4.4 to 14.3 percent, but quickly reverts to slightly elevated levels. Deterioration is significantly larger for more severe violations (e.g. bankruptcy) than for lesser infractions (e.g. minimum bid price). We find the OTC Bulletin Board provides a "soft landing" for delisted firms relative to the Pink Sheets. Although the delisting process takes at least 90 days, the drop in market quality is concentrated on the delisting date, highlighting the benefits of Nasdaq listing and the economic rationale for tiered listing fees. We argue that the increased costs resulting from enforcing Nasdaq's minor (non-core) listing criteria outweigh the benefits.
Number of Pages in PDF File: 55
Keywords: delisting, market quality, Nasdaq
JEL Classification: G12, G14, G33
Date posted: December 8, 2004 ; Last revised: April 13, 2008