Price and Liquidity Effects of Switching Exchange Listings

By examining the price and volume effects around announcements of switching exchanges by firms within structurally similar markets in Taiwan, we uncover that switching firms experience a trivial ‘‘announcement effect’’ at the application announcements and a pronounced price rise during the pre-listing period. Subsequently, we find only partial reversal of this pre-listing run-up over the listing days and post-listing period. However, we observe that stocks’ liquidity improves following the application announcements, peaks around the listing days and remains at high levels after listing. While we find no significant information effect by analyzing analysts’ earnings per share (EPS) forecasts around exchange listings. Collectively, these results provide evidence in support of the permanent improvement in liquidity for transfer stocks as well as the downward sloping demand curve view. Also, there is mild evidence of price pressure effects. The evidence reveals that managerial consideration for exchange listing decisions in the Taiwan stock market is based on the stock’s marketability and not on any private information about the firm’s prospects.