The purpose of this paper is to investigate the relationship between market maker rules and firm value in the National Equities Exchange and Quotations (NEEQ) market and explore the effectiveness channel mechanism for the influence of the market maker system on firm value.
The methodology used in this paper is difference-in-differences (DIDs) model for empirical analysis. The data of firms listed on the New Third Board from 2006 to 2020 were used as a sample, and the final sample comprised 13,374 firm-year observations.
The results show that implementing market maker rules significantly enhances firm market value. Analysis further reveals that this positive effect is primarily mediated through improved stock liquidity, technology research and development expenses and government subsidies. What's more, this paper extends the examination to heterogeneous firm characteristics, uncovering differential impacts of market maker rules across various firm types. Research finds that the market-making trades have obvious advantages in improving the value of small and medium-sized firms, state-owned firms and private firms, the Base tier firms and the central and eastern regions firms. Call auction trades are more conducive to improving the value of large firms, innovation-tier firms and the northeast and those situated in western regions. Therefore, the strategic selection of trading mechanisms can serve as an effective tool for value optimization.
First, we fail to consider the intrinsic characteristics of market makers as well as the heterogeneous effects caused by significant disparities in liquidity supply capacity and information transmission efficiency among market makers of different qualifications. Second, we do not account for the policy shocks from NEEQ market reforms, such as the establishment of the selection layer and the implementation of the transfer mechanism, leaving the influence of these policy changes unaddressed. Third, we overlook the impact of algorithmic market making and high-frequency trading on the transmission mechanism of the market maker system and do not analyze the new traits of market makers in liquidity supply and information transmission under technological empowerment. Future studies could extend this research.
This research shows that firm value is often improved through the combined effects of multiple trading mechanisms rather than a single approach. Therefore, NEEQ-listed firms should not only consider the impact of market-making trades but also evaluate the benefits of other trading methods comprehensively. These firms should select trading mechanisms tailored to their specific characteristics. In addition, establishing a hybrid trading system and reducing the costs of market-making trades and expanding market-making services are necessary.
This research addresses the inconsistent empirical findings in the existing literature and the lack of empirical evidence on the relationship between the trading system and firm value. From the perspective of information theory, identify specific pathways through which market-making trades influence firm value by analyzing strategies available to firms engaged in business transactions, and provide direct evidence for the expansion of related theories. The results of this research not only provide the important theoretical basis for the differentiated effect of trading manner, but also have strong practical significance.
