Trading Venue and Voluntary Earnings Disclosure: The NYSE Specialist Market Versus the NASDAQ Dealer Market
42 Pages Posted: 12 Dec 2006
Date Written: November 24, 2006
We investigate whether managers' disclosure decisions about earnings forecasts, and price responses to these forecasts, are related to the type of exchange on which their firm's 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 market are more likely to disclose earnings but that these firms enjoy higher price responses to each unit of unexpected future earnings information. Our results obtain for firms that moved from the NASDAQ to the NYSE. These results imply that the marginal benefits to disclosure are higher on the specialist market. They are further consistent with previous evidence that adverse selection components of spreads are higher on the NYSE than on the NASDAQ (see Affleck-Graves, Hedge, and Miller (1994), among others). The findings uncovered in this paper also accord with the notion that, even with full disclosure, a monopolistic specialist can extract profits (Amihud and Mendelson (1982)), but a finite number of 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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