We show that the noninformation component of trading costs is priced in the cross-section of stock returns using intraday data for NYSE/AMEX stocks. More importantly, we show that the noninformation component is much larger and more strongly related to stock returns than is the adverse-selection component, indicating that the noninformation component plays a more important role in asset pricing than does the adverse-section component. We conduct a variety of robustness tests and show that our main results hold for different estimation methods, measures of the adverse-selection cost, subsample periods, and control variables. We offer plausible explanations for these results.

Empirical evidence suggests that the voting premium in the Korean securities market is strongly related to the structure of corporate ownership. We find that the premium attached to voting stock is positively and significantly associated with the control value of a block of shares held by minority shareholders. We also find that the premium is negatively related to both the fraction of shares that are voting shares and the market value of equity. Empirical results indicate that private benefits of control in Korea are worth about 10% of the value of equity.

We show that competitive quotes help increase dealer market share on NASDAQ, despite the fact that a large proportion of order flow is preferenced. We find that decimal pricing and the introduction of new trading platforms such as SuperSOES and SuperMontage have significantly changed the effect of quote aggressiveness on dealer market share. In particular, decimal pricing reduces (increases) the price (size) elasticity, SuperSOES increases the size elasticity, and SuperMontage increases both the size and price elasticity of dealer market share. We also show that market centers provide greater price improvements and faster executions when they post competitive quotes.

We analyze data provided by NASDAQ to examine how quote aggressiveness affects dealer market share and whether the practice of internalization mitigates the impact of quote aggressiveness. Our empirical results show that although internalization does not reduce the impact of price aggressiveness on dealer market share, it mitigates the impact of size aggressiveness. This result suggests that although internalization may not affect the dealer's incentive to post aggressive prices, it may reduce the incentive to post large depths. We find that aggressive quotes are more effective in raising dealer market share in stocks with a less competitive (more concentrated) market structure. Our results also show that the effective spread is wider (narrower) for stocks with a smaller price (size) elasticity of dealer market share.

In this paper we analyze the interrelatedness of security analysis and market-making activities. Our results indicate that there exists a bidirectional and positive relation between analyst following and the number of market makers. Using detailed data on analyst and dealer affiliations, we also find that dealers are more likely to make markets in stocks that are tracked by analysts who are affiliated with the same company. Similarly, analysts follow and issue earnings forecasts more proactively for stocks that are handled by affiliated market makers. We interpret these results as evidence that analysts and market makers work as a team to benefit the company. We discuss a possible conflict of interest between investors and brokerage firms that arises from this collaborative endeavor between analysts and dealers.

We analyze the effect of a firm's innovation activities on its likelihood to be acquired and the takeover premium using a large sample of M&A transactions. We show that firms with larger innovation outputs and R&D investments are more likely to be acquired, receive unsolicited bids, and receive multiple bids. The takeover premium increases with the target firm's innovation output, and this positive relation is stronger when there are more competing bidders, when acquiring firms’ product markets are competitive, and when technological proximity is lower in the acquiring firms’ industry. Both the acquirer's cumulative abnormal return around the announcement date and post-acquisition operating performance are positively related to the target firm's innovation output and R&D spending.