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When Do Listed Firms Pay for Market Making in Their Own Stock?
Author(s) -
Skjeltorp Johannes Atle,
Ødegaard Bernt Arne
Publication year - 2014
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12058
Subject(s) - market maker , stock exchange , market liquidity , business , equity (law) , capital market , monetary economics , finance , stock market , economics , paleontology , horse , political science , law , biology
A recent innovation in the equity markets is the introduction of market maker services procured by the listed companies themselves. Using data from the Oslo Stock Exchange, we investigate what motivates issuing firms to pay to improve the secondary market liquidity of their listed shares. By examining the timing of market maker hirings relative to corporate events, we show that hirings are more likely when the firm will interact with the capital markets in the near future. Futhermore, a typical firm employing a designated market maker is more likely to raise capital, repurchase shares, or experience an exit by insiders.