The Journal of Finance

Transparency and Liquidity: A Comparison of Auction and Dealer Markets with Informed Trading

Published: 06/01/1996   |   DOI: 10.1111/j.1540-6261.1996.tb02695.x

MARCO PAGANO, AILSA RÖELL

Trading systems differ in their degree of transparency, here defined as the extent to which market makers can observe the size and direction of the current order flow. We investigate whether greater transparency enhances market liquidity by reducing the opportunities for taking advantage of uninformed participants. We compare the price formation process in several stylized trading systems with different degrees of transparency: various types of auction markets and a stylized dealer market. We find that greater transparency generates lower trading costs for uninformed traders on average, although not necessarily for every size of trade.

Information Sharing in Credit Markets

Published: 12/01/1993   |   DOI: 10.1111/j.1540-6261.1993.tb05125.x

MARCO PAGANO, TULLIO JAPPELLI

We present a model with adverse selection where information sharing between lenders arises endogenously. Lenders' incentives to share information about borrowers are positively related to the mobility and heterogeneity of borrowers, to the size of the credit market, and to advances in information technology; such incentives are instead reduced by the fear of competition from potential entrants. In addition, information sharing increases the volume of lending when adverse selection is so severe that safe borrowers drop out of the market. These predictions are supported by international and historical evidence in the context of the consumer credit market.

Short‐Selling Bans Around the World: Evidence from the 2007–09 Crisis

Published: 12/27/2012   |   DOI: 10.1111/j.1540-6261.2012.01802.x

ALESSANDRO BEBER, MARCO PAGANO

Most regulators around the world reacted to the 2007–09 crisis by imposing bans on short selling. These were imposed and lifted at different dates in different countries, often targeted different sets of stocks, and featured varying degrees of stringency. We exploit this variation in short‐sales regimes to identify their effects on liquidity, price discovery, and stock prices. Using panel and matching techniques, we find that bans (i) were detrimental for liquidity, especially for stocks with small capitalization and no listed options; (ii) slowed price discovery, especially in bear markets, and (iii) failed to support prices, except possibly for U.S. financial stocks.

Why Do Companies Go Public? An Empirical Analysis

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.25448

Marco Pagano, Fabio Panetta, Luigi Zingales

Using a large database of private firms in Italy, we analyze the determinants of initial public offerings (IPOs) by comparing the ex ante and ex post characteristics of IPOs with those of private firms. The likelihood of an IPO is increasing in the company's size and the industry's market‐to‐book ratio. Companies appear to go public not to finance future investments and growth, but to rebalance their accounts after high investment and growth. IPOs are also followed by lower cost of credit and increased turnover in control.

Local Crowding‐Out in China

Published: 07/26/2020   |   DOI: 10.1111/jofi.12966

YI HUANG, MARCO PAGANO, UGO PANIZZA

In China, between 2006 and 2013, local public debt crowded out the investment of private firms by tightening their funding constraints while leaving state‐owned firms' investment unaffected. We establish this result using a purpose‐built data set for Chinese local public debt. Private firms invest less in cities with more public debt, with the reduction in investment larger for firms located farther from banks in other cities or more dependent on external funding. Moreover, in cities where public debt is high, private firms' investment is more sensitive to internal cash flow.

The Geography of Equity Listing: Why Do Companies List Abroad?

Published: 12/17/2002   |   DOI: 10.1111/1540-6261.00509

Marco Pagano, Ailsa A. Röell, Josef Zechner

This paper documents aggregate trends in the foreign listings of companies, and analyzes their distinctive prelisting characteristics and postlisting performance. In 1986–1997, many European companies listed abroad, mainly on U.S. exchanges, while the number of U.S. companies listed in Europe decreased. European companies that cross‐list tend to be large and recently privatized firms, and expand their foreign sales after listing abroad. They differ sharply depending on where they cross‐list: The U.S. exchanges attract high‐tech and export‐oriented companies that expand rapidly without significant leveraging. Companies cross‐listing within Europe do not grow unusually fast, and increase their leverage after cross‐listing.