The effects of NASDAQ delisting on firm performance*

We empirically investigate the effects of involuntary delisting from the NASDAQ on delisted firms. To disentangle the delisting effects from other factors, we use NASDAQ market volatility during a firm's delisting grace period as an instrumental variable (IV) and compare firms that ultimately delisted and began trading on over-the-counter markets with those that regained compliance and remained on the NASDAQ. Although delisted firms experienced declines in liquidity, access to capital markets, investments, and performance, these declines are not mainly attributable to delisting. Among various liquidity measures, delisting reduces daily trading volume only for firms whose stocks were actively traded prior to delisting. Similarly, delisting reduces equity issuance only if the firm's stock was actively traded prior to delisting. Overall, our findings indicate that delisting from a stock exchange is not as costly as commonly believed, supporting recent policy initiatives to provide alternative listing and trading venues for small companies.

Automated summary

This study empirically investigates the effects of involuntary delisting from the NASDAQ on delisted firms and finds that these effects are not primarily attributable to delisting itself. Delisting leads to a decline in trading volume and equity issuance only for firms whose stocks were actively traded prior to delisting. The findings support policy initiatives to provide alternative listing and trading venues for small companies.