Essays on the intermediation of investors

Abstract

Institutions that intermediate between investors and companies are crucial to the proper functioning of capital markets. These institutions provide marketplaces for and facilitate the transaction activity of investors, gather and disseminate information, and record the property rights of securities holders. The effectiveness of these institutions should be valuable to economies as they allow investors to effectively exercise and maximize the rights of ownership (La Porta et al., 2002; Claessens and Laeven, 2003; Hail and Leuz, 2006; Dixit, 2009). This thesis contains two essays that examine the value of different institutions involved in such intermediation.

In the first essay, I examine the effect of securities transfer agents. Transfer agents are used to intermediate between the company and company-registered shareholders. Their primary responsibility is the proper maintenance of shareholder records, and the administration of shareholder transactions. Recent compliance failures by transfer agents, including reported acts of malfeasance by transfer agent staff, have increased regulatory scrutiny of the industry. Follow these events, the Securities and Exchange Commission (“SEC”) has released draft updates to the existing transfer agent regulatory requirements designed to improve the quality of transfer agent services and prevent further failures. Given concerns regarding the effect of this regulation on the costs of operating securities transfer agencies and competition, I examine two questions relevant to the regulatory discussion: Do transfer agents differ in quality? And, do these quality differences matter to investors?

In the second essay, I examine the effect of the minimum price requirements (“MPRs”) of the NASDAQ and New York Stock Exchange (“NYSE”). MPRs permit exchanges to delist firms with stock prices persistently below $1.00. Proponents of MPRs argue they allow exchanges to maintain the quality of listed companies. Critics of the requirements argue they lack fundamental basis, limit access to capital, and harm investors. The merits of MPRs are likely rooted in the quality of firms subject to MPRs, the response of firm managers to (potential) breaches of MPRs, and the steps taken in the event of forced delisting. In this essay, I focus on the actions of firms in response to noncompliance with MPRs and examine whether these noncompliant firms respond by increasing news flow to the market.