Signaling and agency cost theories of dividend policy predict that omissions will produce a larger average decline in equity values than will reductions of less than 100 percent. However, this paper identifies a U-shaped relation between announcement day risk-adjusted excess returns and the percentage decline in dividends. The significantly smaller than expected price reaction to dividend omissions cannot be traced to growth opportunities, nor to a tendency for firms to delay omission announcements. While omitting firms provide higher per share dividends within five years of the dividend action than do firms that severely reduce payments, future dividends are unrelated to the market's response.

Previous research examining the relation between dividend yield and equity returns documents a U-shaped pattern arising from the positive CAPM-adjusted average excess return of zero-dividend firms. In contrast, this paper reports that zero-dividend firms earn negative average excess returns relative to firms of similar size. Despite the apparent conformity of these results to the predictions of after-tax asset pricing models, the negative size-adjusted excess returns cannot be drive solely by tax effects. These excess returns, which are concentrated in the initial zero-dividend years and approach - 1% per month, are attributed to possible dividend-expectation effects rather than taxes.

This paper examines the change in trading costs for firms that choose to move from a dealer market to a specialist system. Using transactions data, our empirical results reveal structurally induced average trading cost reductions of 4.7 (5.2) cents per share for firms that moved from the NASDAQ/NMS to the NYSE (AMEX) in 1990. For NYSE listed stocks, the trading cost reductions are equally divided between quote improvements and the routing of trades to the NYSE. Trading cost improvements vary inversely with trade sizes and positively with dollar spreads. Finally, the greatest liquidity benefits from listing accrue to the less liquid stocks. Journal of Economic Literature Classification Numbers: D40, G12, G20.

In 1936, the federal government unexpectedly imposed a tax on undistributed corporate profits. Despite the direct costs of the tax, its announcement produced a positive revaluation of corporate equity, particularly among lower-payout firms. The authors interpret this as evidence of a divergence between managerial and shareholder preferences regarding dividend payout policies, consistent with the presence of agency costs. They also find that, despite the incentives created by the tax, the actual growth in dividends during 1936 was lower among firms judged more likely to be subject to higher agency costs after controlling for liquidity, debt, and the growth in earnings.

We study the microstructure of the Pink Sheets and assess the ability of existing theory to capture salient features of this relatively unstructured and unregulated market. Clustering patterns in quotes, quoted spreads, and trade prices indicate that market participants have selected price-dependent tick sizes for different stocks. Clustering intensity varies across stocks as a function of proxies for information availability. Similarly, the bid-ask spread varies as a function of volatility and liquidity. These results suggest (1) microstructure research has established robust predictions of market attributes and (2) unstructured markets are able to develop at least some effective behavioral norms endogenously.

In 1936, the Federal Government unexpectedly imposed a tax on undistributed corporate profits. Despite the direct costs of the tax, its announcement produced a positive revaluation of corporate equity, particularly among lower-payout firms. We interpret this as evidence of a divergence between managerial and shareholder preferences regarding dividend payout policies, consistent with the presence of agency costs. We also find that despite the incentives created by the tax, the actual growth in dividends during 1936 was lower among firms judged more likely to be subject to higher agency costs after controlling for liquidity, debt, and the growth in earnings.

On May 26 and 27, 1994, several national newspapers reported the findings of W. Christie and P. Schultz (1994) who cannot reject the hypothesis that marketmakers of active NASDAQ stocks implicitly colluded to maintain spreads of at least $0.25 by avoiding odd-eighth quotes. On May 27, dealers in Amgen, Cisco Systems, and Microsoft sharply increased their use of odd-eighth quotes, and mean inside and effective spreads fell nearly 50 percent. This pattern was repeated for Apple Computer the following trading day. Using individual dealer quotes for Apple and Microsoft, the authors find that virtually all dealers moved in unison to adopt odd-eighth quotes.

In 1936, the Federal Government unexpectedly imposed a tax on undistributed corporate profits. Despite the direct costs of the tax, its announcement produced a positive revaluation of corporate equity, particularly among lower‐payout firms. We interpret this as evidence of a divergence between managerial and shareholder preferences regarding dividend payout policies, consistent with the presence of agency costs. We also find that despite the incentives created by the tax, the actual growth in dividends during 1936 was lower among firms judged more likely to be subject to higher agency costs after controlling for liquidity, debt, and the growth in earnings.

The NASDAQ multiple dealer market is designed to produce narrow bid‐ask spreads through the competition for order flow among individual dealers. However, we find that odd‐eighth quotes are virtually nonexistent for 70 of 100 actively traded NASDAQ securities, including Apple Computer and Lotus Development. The lack of odd‐eighth quotes cannot be explained by the negotiation hypothesis of Harris (1991) , trading activity, or other variables thought to impact spreads. This result implies that the inside spread for a large number of NASDAQ stocks is at least $0.25 and raises the question of whether NASDAQ dealers implicitly collude to maintain wide spreads.