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Off But Not Gone: A Study of Nasdaq Delistings

55 Pages Posted: 8 Dec 2004 Last revised: 13 Apr 2008

Jeffrey H. Harris

American University

Venkatesh Panchapagesan

The Goldman Sachs Group, Inc.

Ingrid M. Werner

The Ohio State University - Fisher College of Business

Date Written: March 4, 2008

Abstract

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.

Keywords: delisting, market quality, Nasdaq

JEL Classification: G12, G14, G33

Suggested Citation

Harris, Jeffrey H. and Panchapagesan, Venkatesh and Werner, Ingrid M., Off But Not Gone: A Study of Nasdaq Delistings (March 4, 2008). Fisher College of Business Working Paper No. 2008-03-005 and Dice Center Working Paper No. 2008-6. Available at SSRN: https://ssrn.com/abstract=628203 or http://dx.doi.org/10.2139/ssrn.628203

Jeffrey H. Harris (Contact Author)

American University ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-6669 (Phone)

Venkatesh (Venky) Panchapagesan

The Goldman Sachs Group, Inc. ( email )

85 Broad Street
New York, NY 10004
United States

Ingrid M. Werner

The Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-6460 (Phone)
614-292-2418 (Fax)

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