Published in Financial Management
A recent innovation in equity markets is the introduction of market maker services paid for by the listed companies themselves. Using data from the Oslo Stock Exchange, we investigate what motivates issuing firms to pay a cost to improve the secondary market liquidity of their listed shares. By studying the timing of market maker hirings relative to corporate events, we show that a contributing factor in this decision is the likelihood that the firm will interact with the capital markets in the near future. The typical firm employing a designated market maker is more likely to raise capital, repurchase shares or experience an exit by insiders.
Keywords: Stock market liquidity, corporate finance, designated market makers, equity issuance, liquidity risk, share repurchase
JEL Codes: G10; G20; G30