When Do Listed Firms Pay for Market Making in Their Own Stock?
We would like to thank Vegard Anweiler and Thomas Borchgrevink at the Oslo Stock Exchange for providing us with information regarding market maker arrangements at the Oslo Stock Exchange. We are grateful for comments from an anonymous referee, Marc Lipson (Editor), Gorm Kipperberg, Randi Naes, Elvira Sojli, Carsten Tangaard, Wing Wah Tham, Siri Valseth, Arne Tobias Malkenes Ødegaard, participants at the FIBE 2010, AFFI 2010, Arne Ryde 2011 Workshop, EFA Conference 2011, the 9th International Paris Finance Meeting 2011, the 2012 Nordic Corporate Governance Workshop in Reykjavik, and seminar participants at NHH, Norges Bank, NTNU, and the Universities of Mannheim and Stavanger. The views expressed are those of the authors and should not be interpreted as reflecting those of Norges Bank or Norges Bank Investment Management. Any remaining errors or omissions are ours.
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.