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Private Intermediary Innovation and Market Liquidity: Evidence from the Pink Sheets® Market

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  • John (Xuefeng) Jiang
  • Kathy R. Petroni
  • Isabel Yanyan Wang

Abstract

In 2007, Pink Sheets LLC assigned each Pink Sheets® company to a disclosure tier and on its website affixed a colorful graphic to its stock symbol signifying the company's public disclosure level. This unique innovation allows us to investigate the impact of increased salience of disclosure practices on liquidity. Using a difference†in†difference design, we find evidence that firms classified into the Current Information category experienced an increase in liquidity while firms classified into the No Information category experienced a decrease in liquidity, both relative to other unclassified over†the†counter firms. This suggests that increases in the salience of disclosure practices via assignment to disclosure tiers affect investors’ attention, leading to changes in trading behavior that ultimately translate into liquidity changes. We also provide evidence that some investors anticipated the resulting liquidity changes because stock returns around a key event date leading up to the release of the disclosure tiers are positively associated with subsequent liquidity changes.

Suggested Citation

  • John (Xuefeng) Jiang & Kathy R. Petroni & Isabel Yanyan Wang, 2016. "Private Intermediary Innovation and Market Liquidity: Evidence from the Pink Sheets® Market," Contemporary Accounting Research, John Wiley & Sons, vol. 33(3), pages 920-948, September.
    • Handle: RePEc:wly:coacre:v:33:y:2016:i:3:p:920-948
    DOI: 10.1111/1911-3846.12159
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    Cited by:

    1. Han, Song & Huang, Alan Guoming & Kalimipalli, Madhu & Wang, Ke, 2022. "Information and liquidity of over-the-counter securities: Evidence from public registration of Rule 144A bonds," Journal of Financial Markets, Elsevier, vol. 59(PB).
    2. Song Han & Alan G. Huang & Madhu Kalimipalli & Ke Wang, 2018. "Information and Liquidity of OTC Securities : Evidence from Public Registration of Rule 144A Bonds," Finance and Economics Discussion Series 2018-061, Board of Governors of the Federal Reserve System (U.S.).
    3. Ge, Weili & Koester, Allison & McVay, Sarah, 2017. "Benefits and costs of Sarbanes-Oxley Section 404(b) exemption: Evidence from small firms’ internal control disclosures," Journal of Accounting and Economics, Elsevier, vol. 63(2), pages 358-384.

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