Tiered Market Structures: an Empirical Examination of NASDAQ
This dissertation consists of two essays examining tiered market structures. We focus on the June 2006 restructuring of the NASDAQ Stock Exchange where the listing environment changed from two to three tiers, creating a top tier with the highest listing standards for any exchange in the world. The first essay examines market quality. Theoretical motivation indicates that different listing and disclosure requirements could result in different levels of information production across tiers, and thus different market quality characteristics. While we do find cross-sectional evidence of market quality differences, we do not find evidence of market quality changes when firms change tiers. Within the NASDAQ trading environment, this result is consistent with a visibility effect, where better (lesser) known stocks are more (less) liquid due to higher levels of investor participation. With the exception of increased effective spreads as firms drop to a lower tier, no other short-term changes in market quality appear to result from firms adhering to new listing standards, when controlling for disclosure standards. The second essay examines any reputation effect resulting from NASDAQ’s tiered structure. Theoretical motivation indicates that exchanges choose listing and disclosure standards to maximize the combination of its reputation value and the value of cash flows from listing and trading fees. We find that NASDAQ’s 2006 restructuring did not appear to enhance its reputation, either directly or indirectly. The restructuring did not result in any positive announcement effect for NASDAQ firms. Further, we find little evidence to support any announcement effects as firms cross into new tiers. Lastly, we find that the restructuring does not appear to have helped NASDAQ become more competitive in the marketplace for attracting new initial public offerings.
Initial Public Offering, NASDAQ, Stock Market, Tiered Market Structure, Business Administration, Management, and Operations
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