Trading Venue and Voluntary Earnings Disclosure: The NYSE Specialist Market Versus the NASDAQ Dealer Market
44 Pages Posted: 19 Mar 2007
We investigate whether managers' decisions to disclose earnings forecasts, and price responses to these forecasts, are related to the type of exchange on which their firms' equity is listed: the NYSE specialist market v. the NASDAQ dealer market. After controlling for postulated determinants of voluntary disclosure and exchange listing, we find not only that firms traded on the NYSE are more likely to disclose earnings, but also that they experience greater price responses to each unit of unexpected future earnings information than do those traded on the NASDAQ. Our results hold for firms that moved from the NASDAQ to the NYSE. These findings imply that the marginal benefits to disclosure are higher on the specialist market. Our results are not only consistent with previous evidence that adverse selection components of spreads are higher on the specialist market than on the dealer market (see Affleck-Graves, Hedge, and Miller (1994), among others), but they also accord with the notion that, even with full disclosure, a monopolistic specialist can extract profits (Amihud and Mendelson (1982)), whereas a finite number of competing liquidity providers, or market makers, cannot (Kyle (1989) or Baruch (2005)). Our results are robust to controlling for the effect of Regulation FD implemented by the SEC in 2000.
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