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An Empirical Analysis of Common Stock Delistings

Published online by Cambridge University Press:  06 April 2009

Gary C. Sanger  and
James D. Peterson
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Abstract

This paper presents an empirical analysis of firms that are delisted from a major stock exchange. The delisting process is described and stock price movements surrounding delisting are analyzed. For firms with prior announcements, equity values decline by approximately 8.5 percent on announcement day. For firms without prior announcements, a similar adjustment takes place between the last day of trading in the initial market and the close of the first day of trading in the new market. Four hypotheses concerning the decline in firm value are examined. These are the liquidity hypothesis, the management signalling hypothesis, the exchange certification hypothesis, and the downward sloping demand curve hypothesis. Evidence consistent with the liquidity hypothesis is presented in the paper. Unlike evidence on stock exchange listings, returns in the post-delisting period do not appear to be anomalous.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 25 , Issue 2 , June 1990 , pp. 261 - 272
Copyright
Copyright © School of Business Administration, University of Washington 1990

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