Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209957 
Year of Publication: 
2010
Series/Report no.: 
Working Paper No. 2010/12
Publisher: 
Norges Bank, Oslo
Abstract: 
In recent years, a number of electronic limit order markets have reintroduced market makers for some securities (Designated Market Makers). This trend has mainly been initiated by financial intermediaries and listed firms themselves, without any regulatory pressure. In this paper we ask why firms are willing to pay to improve the secondary market liquidity of their shares. We show that a contributing factor in this decision is the likelihood that the firm will interact with the capital markets in the near future, either because they have capital needs, or that they are planning to repurchase shares. We also find some evidence of agency costs associated with the initiation of a market maker agreement as the probability of observing insider trades increases when liquidity improves.
Subjects: 
market liquidity
corporate finance
designated market makers
insider trading
JEL: 
G10
G20
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-562-5
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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