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|Title: ||Why Did so Many Poor-Performing Firms Come to Market in the Late 1990s?:
Nasdaq Listing Standards and the Bubble|
|Authors: ||Klein, April|
Mohanram, Partha S.
|Issue Date: ||Apr-2005 |
|Series/Report no.: ||April Klein-8|
|Abstract: ||This paper examines the impact of Nasdaq Listing Standards on the
composition of new listings in the late 1990s. The Nasdaq has two types
of listing standards: one based on profitability and the second based
explicitly or implicitly on market capitalization. Specifically,
unprofitable firms are allowed to list if either their pro-forma net
tangible assets, which include the anticipated proceeds from their IPO,
exceeds $18 million or their market capitalization exceeds $75 million.
We show that as the market bubble accelerated in the late 1990s, a vast
majority of firms entered under a market capitalization based standard,
and these firms became a substantial portion of the Nasdaq.
Subsequently, these firms performed the poorest both in terms of
financial performance, stock return performance as well as involuntary
delistings, while firms that listed under the profitability standard
performed much better. In addition, firms that entered under market
capitalization standards also exhibited the greatest return volatility.
These results illustrate the importance of a profitability standard and
the danger of a market capitalization based standard (explicit or
implicit) in a market that is in, what ex-post turns out to be, a bubble.|
|Appears in Collections:||Accounting Working Papers|
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