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AN ANALYSIS OF THE VARIABLES AFFECTING A ~ ' r : ' r .
Q COMPANY’S DECISION IN THE CHOICE OF MARKETS "
‘ FOR ITS COMMON STOCK

Thesis for the Degree of Ph. D.
’ " MICHIGAN STATE umvgasm/ ‘
WALDEMAR MELVIN eouuar

1973 ‘

 

     

mu

LIBRAR Y ‘3,
Michigan ., _.2 .
University {i

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This is to certify that the

thesis entitled

AN ANALYSIS OF THE VARIABLES AFFECTING A
COMPANY'S DECISION IN THE CHOICE OF MARKETS
FOR ITS COMMON STOCK

presented by

Waldemar Me1vin Goulet

has been accepted towards fulfillment
of the requirements for

Ph . D. degree in Finance

@giimu

Majozprofe'ssor

 

Date 'February 22L1973

 

0-7 639

ABSTRACT
AN ANALYSIS OF THE VARIABLES AFFECTING A

COMPANY'S DECISION IN THE CHOICE OF
MARKETS FOR ITS COMMON STOCK

BY

Waldemar Melvin Goulet

Most decision making activity of the firm takes place
under conditions of uncertainty and is predicated upon
management's beliefs or expectations. The effects of an
exchange listing on a company's common stock are unknown
until after the decision is made and listing takes place.

It would seem, then, that the listing decision emanates
from expectations held by management.

The purpose of this research is to learn more about the
theory of the firm that relates to the decision to list or
refrain from listing common stock on a national exchange.
This study investigates the listing decision activity of
firms which listed in 1969 or 1970 on the American or the
New York Stock Exchanges and firms which have been eligible
since mid-1969 for either of these exchanges but have refrained
from listing.

The research investigates: l) the variables that are
evaluated by firms, 2) those variables given the greatest
emphasis in the choice of markets, 3) which individuals or

groups have the strongest influence on the listing decision,

to t
was
by i

anal

es:

Waldemar Melvin Goulet

and 4) the development of a multiple discriminant function
that classifies firms as either "listers" or "non-listers."

The research is based on 311 responses to a mail
questionnaire survey undertaken between August, 1971 and
December, 1971 of companies located in 43 different states
and the District of Columbia. The findings were subjected
to the following multivariate techniques: cluster analysis
was used to determine the "natural" groupings of variables
by which a market is judged by corporate executives; factor
analysis was used to determine the "strength" (greatest
emphasis) of the overall relationships among these variables;
and multiple discriminant analysis was used to predict group
membership.

The findings show that the variables given the greatest
emphasis in the choice of markets are: transactions (volume
of sales); loss of sales support; reporting requirements to
stockholders, to the public, and to the exchange; company's
credit rating, and access to capital markets.

The groups and individuals who tend to have the strong-
est influence on the listing decision are: the board of
directors, the company president (occasionally a vice presi—
dent), and institutional investors.

Other variables and opinions, when added to the above
cited items, can be utilized in a multiple discriminant function
to classify correctly approximately 90 percent of the unlisted
and listed company questionnaire respondents.

Executive responses tend to parallel the advantages of

—-

 

ti

 

th

hi

.1.

Waldemar Melvin Goulet

listing which appear in the financial literature and text-
books. Executive responses; however, are not in agreement
with certain of the stated disadvantages of listing.
Executives do not regard reporting requirements as "onerous,"
are not interested in a voluntary delisting option, and

tend not to consider listing expenses as an important por-
tion of the listing decision.

The results of the listing decision process do not
appear to stem from positive versus negative expectations
as executives of both unlisted and listed companies tend to
hold positive (or neutral) expectations regarding the
efficacy of an exchange listing. The decision to market
the company's common stock on an exchange emanates from the

higher and more positive expectations held by executives of

listed companies.

AN ANALYSIS OF THE VARIABLES AFFECTING A
COMPANY'S DECISION IN THE CHOICE OF
MARKETS FOR ITS COMMON STOCK

BY

Waldemar Melvin Goulet

A THESIS

Submitted to

Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Accounting and Financial Administration

1973

© Copyright by
WALDEMAR MELVIN GOULET
1973

DEDICATION

This dissertation is dedicated to
the people of the United States of America
who through their sacrifices and beliefs
created the environment and institutions

which made possible my education.

ii

‘1!
H
(U

ACKNOWLEDGMENTS

The writing of a dissertation is a learning process
which facilitates the student's entry into original and
creative areas. It does this by requiring the integration
of separate bodies of knowledge, and through the application
of the various subject areas to a specific problem, enables
the ne0phyte researcher to develOp and grow. Fortunately
for me, there were a number of people who willingly nurtured
and guided my thoughts and interest.

Foremost among those contributing to the final product
are:

Doctor Alan E. Grunewald, Professor of Financial
Administration, Michigan State University, provided direction
and insight regarding the research's objectives. Doctor
Grunewald's encouragement, throughout the doctoral program,
has added immeasurably toward my development and the comple-
tion of the dissertation.

Doctor Gardner M. Jones, Professor and Chairman of
the Department of Accounting and Financial Administration,
Michigan State University, as a member of the dissertation
committee, provided assistance and motivation during the
research process, and provided enthusiasm during the entire
program.

iii

V..-
a J

an

AH. av
m. R an
e b s

Doctor Donald A. Taylor, Professor and Chairman of the
Department of Marketing and Transportation, Michigan State
University, assisted in developing the questionnaire, and
as a member of the dissertation committee, provided helpful
suggestions on research techniques.

Mr. Robert A. Coplin, Vice President, American Stock
Exchange, Inc., Information Services Division, rendered
considerable research assistance and service.

Miss Colleen A. Brady, Senior Research Associate, American
Stock Exchange, Inc., Research Department, provided detailed
data in a professional and friendly manner to the myriad
questions asked of her.

And, finally, Janet, who provided loving and patient
encouragement throughout the years which enabled me to pursue

the bachelor's, master's and doctoral degrees.

iv

LIE

C31

TABLE OF CONTENTS

DEDICATION . . . . . . . . . . . . . . . .
ACKNOWLEDGMENT . . . . . . . . . . . . . .
LIST OF TABLES . . . . . . . . . . . . . .
LIST OF FIGURES . . . . . . . . . . . . .
LIST OF APPENDICES . . . . . . . . . . . .
CHAPTER
I. INTRODUCTION . . . . . . . . . . .
Research Objectives . . . .
Nature of the Problem . . . . .
Background of the Problem . . .

Prior Research . . . . . .
Delisting Effects . . . .

“Anticipation of Listing" Effects

Listing Effect Studies . . . .
Other Literature . . . .
Statement of Problem . . .
Hypothesis . . . . . . . .
Methodology . . . . . . . . . .
Potential Contributions of the R

Limitations of the Study . . .
Organization . . . . . . . . .

II. THE OVER-THE-COUNTER AND THE
EXCHANGE MARKETS . . . . . . . . .

Background . . . . . . . . . . .

Changes in the Securities Markets

A Comparison of the Over-the-Counter

and Exchange Markets . . . . . .
The Over-the-Counter Market .
Organization . . . . . . . .
Structure . . . . . . . .
Location . . . . . . . . .
Methods of Doing Business

Type of sale . . . . . .
Transaction costs . . .

Price quotes . . . . . .

Market makers . . . . .

V

esearch

ii
iii
ix
xvii

xviii

H

raw
wammmnuww

HHHH
wwww

l6

l6
17

20
22
22
22
22

22
24
25

Volume reporting . . .
Membership Standards and Publicity .
Criteria for inclusion . . . . . .
Market standards . . . . .
Reporting requirements . .
Fees paid by company . . .
Publicity . . . . . . .

The Exchange Markets . .
Organization . . . . . .
Structure . . . . .
Location . . . . . . .
Methods of Doing Business
Type of sale . . .
Transaction costs
Price quotes . . .
Market makers . .
Volume reporting . . . . . .
Membership Standards and Publicity
Criteria for inclusion . . . . .
Market standards . . .
Reporting requirements
Fees paid by company .
Publicity . . . . . .

III. RESEARCH DESIGN AND METHODOLOGY . . . . . .

Questionnaire Objective and Development
Development of the Questionnaire . .
Pretesting of the Questionnaire

Questionnaire Construction . .
Organization of Contents . .

The Identification of Variables
Dependent Variable . . . . . .
Independent Variables . . . .
Related Variables . . . . . .

Selection of Companies for Study
Included Industries . . . . .
Excluded Industries . . . . .
Other Exclusions . . . . .
Data Sources Utilized to Develop
a Selection Base . . . . . . . . . . . .
Methods of Selecting Companies for Study

Listed Companies . . . . . . .
Unlisted Companies . . . . . .
Time Period Covered by Study . .
Geographic Location of Companies
Questionnaire Recipients . . . .

Analytical Techniques and Programs
Administration . . . . . . . . .
Data Preparation . . . . . . . .
Computer Programs . . . . . . .

vi

27

28
28

30
30

31
31
31
32
33
33

35
37
37
38
38
38
38

42
43

43
43

45
45
46

47
48
48
48
49
50

so
53
53
53
56
56
57
57
57
58
59

IV.

ACT Computer Program . .
Split-Plot Design . . .

Multiple Discriminant Analysis

Cluster Analysis . . . .
Factor Analysis . . . .
Classification Program .
Validation Procedures . .

Classification of Companies by

Questionnaire Responses
Original Group Companies

Subsequently Listed Companies:

Original Group . . . . .

Special Sample: Recent American

Exchange Listees . . . .

PRESENTATION AND ANALYSIS OF FINDINGS

Introduction . . . . . . . .
Presentation of Findings . .
Responses . . . . . . . .
Respondents' Personal Data
Corporate Characteristics
Financial and Historical

Financial Programs and Relations

Data

Financial Relations Activity .

Financial Reporting .

Contacts with Financial Analysts .

Interest in an Exchange Listing

Internal Company Discussions .

Discussions with Market Making

Over-the-Counter Dealers .

Communication with Exchanges

Listing Intentions . . .

Major Exchanges Intentions

"Dual" Listing Considerations

Listing Request Activity
Miscellaneous Questions

Expenses Associated with Listing
Executive Expectations Regarding

Exchange Listing . . . .

Values Assigned to Opinions of
Business and Financial Experts

Statistical Analysis . . .

American Company Group Analysis
A Cluster Analysis of the Variables

an

A Factor Analysis of the Variables .

New York Company Group Analysis
A Cluster Analysis of the Variables

A Factor Analysis of the Variables .

vii

78

84
88
89
93
96

102
105

V.

FOR FUTURE RESEARCH .

Introduction
Conclusions

APPENDICES

BIBLIOGRAPHY

The
The
The
the
The

Variables Analy

zed and E

CONCLUSIONS AND IMPLICATIONS

valuated

Variables Given the Greatest Emphasis

Individuals and Groups Influencing

Listing Decision

Classification of Firms as Listers
or Nonlisters
Financial Literature and Executive

Listing Expectations
Implications of Future Research .

Applications of Research Findings
Limitations of the Research

Future Research .

viii

109

109
110
111
112

115
118
120
121
121
122
123
125

206

Ta}

 

LIST OF TABLES

Table Page

2—1 Requirements for Inclusion in NASDAQ
and Newspapers . . . . . . . . . . . . . . . 29

2-2 Commission Rates of the American and
New York Stock Exchanges . . . . . . . . . . 36

2-3 Listing Standards of the American and
New York Stock Exchanges . . . . . . . . . . 39

2-4 Listing Fees of the American and New
York Stock Exchanges . . . . . . . . . . . . 41

3-1 Number of Listed Companies Included
in Study 0 O O C O O O O I O O I O 0 O O O O 5 3

3-2 Over-the-Counter Firms Considered and
the Number Included in Study . . . . . . . . 55

4-1 Financial and Corporate Data: American
Company Group (Arithmetic means in
thousands) . . . . . . . . . . . . . . . . . 71

4-2 Financial and Corporate Data: New York
Company Group (Arithmetic means in
thousands) o o ’o o o o o o o o o o o o o o o 71

4-3 Executive Listing Expectations:
American Company Group . . . . . . . . . . . 79

4-4 Executive Listing Expectations:
New York Company Group . . . . . . . . . . . 81

4-5 Values Assigned to the Opinions of
Business and Financial Specialists:
American Company Group . . . . . . . . . . . 85

4-6 Values Assigned to the Opinions of
Business and Financial Specialists:
New York Company Group . . . . . . . . . . . 86

4-7 Discriminant Scores: American Company
Group C O O O O O O O O O O O O O O O O O O 89

ix

n .
.a:

Table Page

4-8 Discriminant Analysis Classification:
Original Respondents American
Company Group . . . . . . . . . . . . . . . 90

4-9 Minimum Chi-Square Classification:

Original Respondents American

Company Group . . . . . . . . . . . . . . . 91
4-10 Discriminant Analysis and Minimum

Chi-Square Classification of 1971
and 1972 Listed Companies . . . . . . . . . 92

4-11 A Comparison of Five "Listing Expectation"
Clusters: Unlisted and Listed American
Group Companies . . . . . . . . . . . . . . 94

4-12 A Comparison of Four "Opinion Value"
Clusters: Unlisted and Listed
American Group Companies . . . . . . . . . 95

4-13 Variables Common or Unique Within the
"Listing Expectation" Factors:
Unlisted and Listed American Group

companies 0 O O O O O O O O O O O O O 0 O O 97
4-14 Variables Common or Unique Within the

"Opinion Value" Factors: Unlisted and

Listed American Group Companies . . . . . . 99
4-15 Discriminant Scores: New York Company

Group 0 O O O O O O O O O O O O I O O O O 0 100

4-16 Discriminant Analysis Classification:
Original Respondents New York Company
Group 0 O O O O I O O O I O O O O O O O O O 100

4-17 Minimum Chi-Square Classification:
Original Respondents New York Company
Group 0 O O O O O O O O O O O O O O O I O O 101

4-18 A Comparison of Five "Listing Expectation"
Clusters: Unlisted and Listed New York
Companies . . . . . . . . . . . . . . . . . 103

4-19 A Comparison of Three "Opinion Value"
Clusters: Unlisted and Listed New
York Companies . . . . . . . . . . . . . . 105

4—20 Variables Common or Unique Within the
"Listing Expectation" Factors:
Unlisted and Listed New York Companies . . 107

X

Table

4-21

5-4

5-5

5-6

5-7
b-l
b-2
b-3

Variables Common or Unique Within the
"Opinion Value" Factors: Unlisted and
Listed New York Companies . . . . . . .

Listing Expectation Variables: Considered
and Evaluated by All Company Groups . .

Listing Expectation Variables: Partially
Accounting for the Variance Within
Factors of All Company Groups . . . . .

Listing Expectation Variables: Partially
Accounting for the Variance Within
Factors of Some Company Groups . . . .

Listing Expectation Variables Accounting
for the Choice of Markets for a
Company's Common Stock . . . . . . . .

Opinions Partially Accounting for the
Variance Within Factors of All
Company Groups . . . . . . . . . . . .

Opinion Values Within the Factors of
Unlisted and Listed Company Executives

Minimum Chi-Square Classification Results
Survey Counts: American Company Group . .
Survey Counts: New York Company Group . .

Geographic Distribution of Respondents:
American Company Group . . . . . . . .

Geographic Distribution of Respondents:
New York Company Group . . . . . . . .

Respondents' Industrial Classification:
American Company Group . . . . . . . .

Respondents' Industrial Classification:
New York Company Group . . . . . . . .

Respondents' Titles: American Company
Group 0 O O O O O O O O I O O O I O O 0

Respondents' Titles: New York Company
Group C O O I I O I O O I O O O O O O 0

Respondents' Ages: American Company Group

xi

Page

108

112

113

114

115

116

117
119
131
131

132

134

136

137

138

138

139

Table
b-lO
b-ll

b-14

b-15

b-16

b-17

b-20

b-21

b-22

b-23

Respondents' Ages: New York Company Group

Respondents' Level of Education: American

Company Group . . . . . . . . . . .

Respondents' Level of Education: New York

Company Group . . . . . . . . . . .

Respondents' Participation in Investment
Courses or Seminars: American Company

Group 0 O O O O O O O O O O O O O 0

Respondents' Participation in Investment
Courses or Seminars: New York Company

Group 0 0 O C O O O O O O O C O O 0

Financial and Historical Data: American

Company Group . . . . . . . . . . .

Financial and Historical Data: New York

Company Group . . . . . . . . . . .

Authorizes Releases of Investor Information:

American Company Group . . . . . .

Authorizes Releases of Investor Information

New York Company Group . . . . . .

Investor Relations and Employee Stock
Plans: American Company Group . . .

Investor Relations and Employee Stock
Plans: New York Company Group . . .

Financial Specialists on the Board of
Directors: American Company Group .

Financial Specialists on the Board of
Directors: New York Company Group .

Over-the-Counter Market Making Dealers:

American Company Group . . . . . .

Over-the-Counter Market Making Dealers:

New York Company Group . . . . . .

Institutional Holders of Company Stock

Before and After Listing: American
Company Group . . . . . . . . . . .

xii

Page

139

140

140

141

141

142

143

144

144

145

146

147

148

149

150

151

Table

b-26

b-33

b-34

b-35

b-36

b-37

b-38

b-39

b-40

b-4l

b-42

Institutional Holders of Company Stock
Before and After Listing: New York
Company Group . . . . . . . . . . . . .

Frequency and Distribution of Financial
Information: American Company Group . .

Frequency and Distribution of Financial
Information: New York Company Group . .

Personal Contacts Initiated by Companies:
American Company Group . . . . . . . .

Personal Contacts Initiated by Companies:
New York Company Group . . . . . . . .

Telephone Contacts Initiated by Companies:
American Company Group . . . . . . . .

Telephone Contacts Initiated by Companies:
New York Company Group . . . . . . . .

Written Contacts Initiated by Companies:
American Company Group . . . . . . . .

Written Contacts Initiated by Companies:
New York Company Group . . . . . . . .

Personal Contacts Initiated by Analysts:
American Company Group . . . . . . . .

Personal Contacts Initiated by Analysts:
New York Company Group . . . . . . . .

Telephone Contacts Initiated by Analysts:
American Company Group . . . . . . . .

Telephone Contacts Initiated by Analysts:
New York Company Group . . . . . . . .

Written Contacts Initiated by Analysts:
American Company Group . . . . . . . .

Written Contacts Initiated by Analysts:
New York Company Group . . . . . . . .

Company (Internal) Discussions Regarding
Listing: American Company Group . . . .

Company (Internal) Discussions Regarding
Listing: New York Company Group . . . .

xiii

Page

152
153
155
157
157
158
158
159
159
160
160
161
161
162
162
163

163

Table

b-43

b-44

b-45

b-46

b-47

b-48

b-49

b-50

b-51

Interest in a Voluntary Delisting Option:

American Company Group . . . . . . .

Interest in a Voluntary Delisting Option:

New York Company Group . . . . . . .

Listing Discussions With Over-the-Counter

Dealers: American Company Group . .

Listing Discussions With Over-the-Counter

Dealers: New York Company Group . .

Reasons for Over-the-Counter Dealer
Attitudes: American Company Group .

Reasons for Over-the-Counter Dealer
Attitudes: New York Company Group .

Communication With Exchanges Regarding
Listing: American Company Group . .

Communication With Exchanges Regarding
Listing: New York Company Group . .

Frequency and Types of Contact With
Exchanges: American Company Group .

Frequency and Types of Contact With
Exchanges: New York Company Group .

Listing Intentions of Unlisted Companies:

American Company Group . . . . . . .

Listing Intentions of Unlisted Companies:

New York Company Group . . . . . . .

Listing Intentions of Listed Companies:
American Company Group . . . . . . .

Listing Intentions of Listed Companies:
New York Company Group . . . . . . .

"Dual" Listing Intentions: American
Company Group . . . . . . . . . . .

"Dual" Listing Intentions: New York
Company Group . . . . . . . . . . .

Listing Request Activity: American
Company Group . . . . . . . . . . .

xiv

Page

164

164

165

166

167

169

171

171

172

173

174

175

176

177

178

179

180

Table Page

b-60 Listing Request Activity: New York
Company Group . . . . . . . . . . . . . . . 181

b-61 Plans for Selling Additional Stock:
American Company Group . . . . . . . . . . 182

b-62 Plans for Selling Additional Stock:
New York Company Group . . . . . . . . . . 182

b-63 Executive Preference for Confidential
Responses: American Company Group . . . . . 183

b-64 Executive Preference for Confidential
Responses: New York Company Group . . . . . 183

b-65 American Exchange Listing Expenses:
American Company Group . . . . . . . . . . 184

b-66 New York Exchange Listing Expenses:
New York Company Group . . . . . . . . . . 185

b-67 Expectations of Exchange Efficacy:
American Company Group . . . . . . . . . . 186

b-68 Expectations of Exchange Efficacy:
New York Company Group . . . . . . . . . . 188

b-69 Value Assigned to Professional Opinions:
American Company Group . . . . . . . . . . 190

b-70 Value Assigned to Professional Opinions:
New York Company Group . . . . . . . . . . 191

b-71 Discriminant Coefficients for the American
and New York Company Groups . . . . . . . . 192

b-72 Clustering of the Listing Expectation
Variables: Unlisted American Companies . . 194

b-73 Clustering of the Listing Expectation
Variables: Listed American Companies . . . 195

b-74 A Factor Analysis of the Listing
Expectation Variables: Unlisted
American Companies . . . . . . . . . . . . 196

b—75 A Factor Analysis of the Listing

Expectation Variables: Listed
American Companies . . . . . . . . . . . . 197

XV

Ta

’1‘

(7‘

Table

b-76

U‘
I

77

b-78

b-79

b-83

b-87

Clustering of the Professional Opinion
Variables: Unlisted American Companies

Clustering of the Professional Opinion
Variables: Listed American Companies .

A Factor Analysis of the Professional
Opinion Variables: Unlisted American
Companies . . . . . . . . . . . . . .

A Factor Analysis of the Professional
Opinion Variables: Listed American
Companies . . . . . . . . . . . . . .

Clustering of the Listing Expectation
Variables: Unlisted New York Companies

Clustering of the Listing Expectation
Variables: Listed New York Companies .

A Factor Analysis of the Listing
Expectation Variables: Unlisted New
York Companies . . . . . . . . . . . .

A Factor Analysis of the Listing
Expectation Variables: Listed New York
Companies . . . . . . . . . . . . . .

Clustering of the Professional Opinion
Variables: Unlisted New York Companies

Clustering of the Professional Opinion
Variables: Listed New York Companies .

A Factor Analysis of the Professional
Opinion Variables: Unlisted New York
Companies . . . . . . . . . . . . . .

A Factor Analysis of the Professional

Opinion Variables: Listed New York
Companies . . . . . . . . . . . . . .

xvi

Page
198

198
199

199
200

201
202

203
204
204
205

205

LI ST OF FIGURES

Figure Page

2

l A Comparison of the Characteristics
of the Over-the-Counter and
Exchange Markets . . . . . . . . . . . . . . 21

xvii

LIST OF APPENDICES

Appendix Page

A Questionnaires Sent to Unlisted
and Listed Company Executives . . . . . 125

B Summary Data From Questionnaire

Responses and Tables Containing
Statistical Results . . . . . . . . . . 131

xviii

CHAPTER I

INTRODUCTION

Research Objectives
The purpose of this research is to learn more about the
theory of the firm that relates to the decision to list or
refrain from listing common stock on a national exchange.
As Cyert and March pointed out in their book, A Behavioral

Theory of the Firm, "...in order to understand contemporary

 

economic decision making, we need to supplement the study of
market factors with an examination of the internal operations
of the firm--to study the effects of organizational structure
and conventional practice on the development of goals, the
formation of expectations, and the execution of choices."1

A primary objective is to supplement the market factor
studies of other investigators by researching the behavioral
and attitudinal characteristics which influence the listing
decision. By augmenting the level of available information,
economic efficiency may be improved since the correct
decision--to remain in the over-the-counter market or to

join the "autonomous" market of a national exchange--may have

 

1Richard M. Cyert and James G. March, A Behavioral Theory
of the Firm (Englewood Cliffs, New Jersey: Prentice-Hall,
Inc., 1963), p. 1.

 

2
implications for stockholders in terms of marketability and
liquidity and for the company in terms of its cost of capi-
tal.2

Nature of the Problem

 

Most decision making activity of the firm takes place
under conditions of uncertainty and is predicated upon manage-
ment beliefs and expectations and "...since the future can
never be forecast with certainty, financial decisions must
rest in part on margins of safety, flexibility, and protective
strategies to deal with changes in the crucial variables."3

This study investigates the listing decision process in
order: (1) to ascertain the crucial variables that are
analyzed and evaluated, (2) to learn which variables are
given the greatest emphasis in the choice of markets, (3)
to determine those individuals or groups which tend to have
the strongest influence on the listing decision, and (4)

to develop a multiple discriminant function that classifies

firms as either listers or nonlisters.

 

2The listing of a stock when there is insufficient de-
mand in the ”autonomous" exchange market may result in
decreased marketability and information by the subsequent
loss of support by the over-the-counter dealers. If the loss
of support and decreased publicity reduces the price per
share (from what it had been or would have been), then the
company's cost of capital may be raised.

3J. Fred Weston. "Toward Theories of Financial Policy,"
Journal of Finance, Vol. X (March, 1955): p. 137.

W

ml.

b.

at

3
Background of the Problem

A company's common stock must be publicly held before
it can be listed on an exchange. Going public usually re—
quires the services of an investment banker to facilitate
the initial public distribution of stock. After the original
sale, one or more dealers become "market-makers" by main-
taining inventories and by offering to buy or sell its
common stock. Over time, the increases in a company's sales,
income, and ownership base attract not only additional
dealer interest but may also bring the company to the status
where its stock becomes eligible for listing on an exchange.
The companies which meet an exchange's eligibility require-
ments have the option of selecting where their stock is to
be traded, that is, either listed on a national exchange
or sold over-the-counter.

Once the company has the option of listing or of re-
fraining from listing, it should (if it has not already done
so) thoroughly investigate the national exchange for which
it is eligible. However, a review of academic and business
literature reveals that there is a dearth of information
available to guide or assist executives in the listing de-
cision. For example, there is little research regarding the
reasons for a company's stock remaining in the over-the-
counter market once it has met an exchange's listing require-
ments. Furthermore, as the next section shows, for those
companies who chose to list their stock there is conflicting
evidence regarding the value of listing when stock prices

are considered.

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4

Prior Research

 

James E. Walter found that the most frequently given
reason for not listing their stocks on the Pacific Coast Stock
Exchange by 19 eligible, regional companies was the concern
with loss of broker support.4 Whether or not the same level
of concern regarding broker support exists for nationally
known companies whose common stock is widely held has not
been answered either by Professor Walter or other researchers.
Furthermore, Professor Walter's survey of 19 firms appears to
be the only research attempt made to determine why firms do
not list.

There are, however, written statements in the financial
press that tend to assume that there are different effects
between the over-the-counter and exchange markets on the
price of common stocks. Examples of these statements are:

"The price of over-the-counter stock is not
swollen by the premium the public is ordinarily
willing to pay for exchange-listed securities."

"A company with stock listed on the New York
Stock Exchange is not strictly comparable to a
company whose stock is traded over-the-counter.

Ordinarily we would expect the latter stock to sell

at a somewhat higher yield and lower price-earnings
ratio."6

 

4 .
James E. Walter, The Role of Regional Secur1ty

Exchanges (Berkeley, California: University of California
Press, 1957), p. 86.

5The Commercial and Financial Chronicle, October 10,
1963, p. I415.

6Robert W. Johnson, Financial Management (3rd ed.;
Boston: Allyn and Bacon, Inc., 1966). p. 635.

 

ei

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501
P0}

Ext

‘9
.ie 9;

5
"...1eading investment companies and the courts

are convinced that listing creates an incremental

capital value for most listed stocks."7

A number of different approaches have been attempted in
order to test some of the beliefs regarding stock prices when
common stocks are moved: (1) from the over-the-counter to
the exchange markets; and (2) from the exchange markets to
the over-the-counter market.

Three of these approaches are: (l) delisting, where the
effects on prices are evaluated when a stock moves from a
national exchange to the over-the-counter market; (2) the
effects relating to the "anticipation of listing"; and (3)
listing effect studies.

Delisting Effects

In 47 out of 53 issues, the last available listing
price was higher than the earliest available over-the-counter
price for those stocks delisted from the New York and American
Stock Exchanges. On the average, the loss amounted to about
17% for delisted stocks compared with a gain of about 1%
for the remaining listed stocks.8 However, as this study
pointed out, the reasons for delisting often determine the

extent to which a stock will be affected.

 

7John L. O'Donnell, "Case Evidence on the Value of a
New York Stock Exchange Listing," Business Topics, Vol.
XVII (Summer, 1969), p. 21.

 

8Barron's, March 4, 1963, p. 9.

 

CM hi}
00 xi

 

6
"Anticipation of Listing" Effects

A Barron's study indicated that "anticipation of list-
ing is more favorable than the act itself."9 In that study
68 out of 94 issues outperformed their respective Dow-Jones
average (i.e., the industrial or utility average, depending
to which group the newly listed stock belonged) during the
three months leading up to the date of listing; however,
about half of the 68 stocks which gained in price suffered a
sell-off the day after listing, and 43 stocks lost at least
part of their gains with virtually all of these backsliders
failing to perform as well as the general market during the

30 days immediately following listing.10

Listing Effect Studies

Professor Van Horne concluded in a recent article that
"support cannot be marshalled for the hypothesis that market
participants can 'profit' from buying a stock upon the
announcement to list and selling it at the time of listing,
nor for the idea that listing is a thing of value."11

Van Horne's approach was to randomly select ten firms
each year that listed on the New York Stock Exchange and

ten firms on the American Stock Exchange from 1960 through

1967. His empirical tests involved the analysis of prices

 

gBarron's, January 29, 1962, p. 14.

loIbid., p. 5.

11James C. Van Horne, "New Listings and Their Price
Behavior", The Journal of Finance, Vol. XXV (September,
1970), p. 7942

 

In

U)

5%

7
of the listing stocks over five dates: four months prior to
registration with the SEC; two months prior to registration;
the registration date; the listing date when the stock was
first traded on the exchange; and two months after listing.
He constructed price indices for the listing firms and then
subtracted the appropriate Standard and Poor's industry
average price index in order to hold constant the effect of
stock price movements in the market. Before adjustments
for transactions cost, there was a significant difference
in price appreciation (at the 5% level) for newly listed
stocks for the period two months before registration to two
months after listing. However, after adjustments for transac-
tions cost, the difference, between price changes of newly
listed stocks and industry average price changes for the
same period, was no longer significant.

In another study undertaken to determine whether or not
listing has an effect on share price, Professor Furst inves-
tigated 198 out of the 239 companies listed on the New York
Stock Exchange from 1960 through 1965. He ran a regression
analysis on price using actual or proxy variables for div-
idends, rate of growth, retention rates, book value,
earnings stability, leverage, corporate size, and a listing
variable on eight industry groups, taken both separately

and collectively, and his conclusions were:

li:
be
ex:
The

ha:

8
"The results simply showed that, generally

speaking, market price after listing was not

significantly higher than it would have been if

the stock had remained on the over-the-counter

market. This does not eliminate the possibility

that listing may benefit some companies while being

detrimental to others. However, the research does

indicate that, when other variables are considered,

listing per se does not significantly affect the

market prices of common stocks in general."12

These studies merely attempt to analyze whether or not
listing has a dollar value. The research to date appears to
be inconclusive. The "delisting studies" indicate that the
exchange market enables a stock to sell at higher prices.
The "anticipation of listing" studies imply that listing
has a value but only in the short—run. One of the listing
studies tends to support the "anticipation of listing" find-
ings, and the other study, by Professor Furst, points out
that listing, per se, does not significantly affect market
prices in general. I

It may be that variables, other than "expected dollar
values," have a greater influence on the listing decision.
In fact, it would seem that the importance of the "expected
dollar value" decision variable would be reduced by the ex-
tent to which firms are aware of the uncertainty of favorable
price per share changes.

Regardless of the lack of information and the conflict-

ing conclusions, many companies make the decision to list

 

12Richard W. Furst, "Does Listing Increase the Market
Price of Common Stocks,” The Journal of Business, Vol.
XXXXIII (April, 1970): p0 180.

 

while

over-

Jourr
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into

/

9
while others decide to continue marketing their stock in the

over-the-counter market.

Other Literature
A comprehensive survey of the financial newspapers and
journals and of the academic literature indicates that many
authors hold similar beliefs regarding the effects of listing
common stock. The writings of five authors, who succinctly
summarize the available literature, have been consolidated
into the following lists of advantages and disadvantages.13

The advantages of listing are enumerated as:

l. The broadening of the ownership base and the
resultant increase in marketability of stock;

2. Listing facilitates the raising of additional
capital, improves credit standing, and may
lower the cost of capital;

3. Assists acquisition minded firms;

4. Makes possible margin trading:

5. Decreases market volatility (because of the
specialist activity);

6. Listing has public relations and advertising
value;

7. Listing augments the firm's prestige and
reputation.

 

3 . .
1 The advantages and d1sadvantages are summar1es from

the following sources: Adolph E. Grunewald and Erwin Esser
Nemmers, Basic Managerial Finance (New York: Hole, Rinehart
and Winston, Inc.,I970T, p. 448; Robert W. Johnson,
Financial Management (3rd ed., Boston: Allyn and Bacon, Inc.,
1966), pp. 579- 80; Raymond P. Kent, Cor orate Financial
Management (3rd. ed., Homewood, Illin01s: R1chard D. Irwin,
Inc., 1969), pp. 559- -63; Donald E. Vaughan, Survey of
Investments (New York: Holt, Rinehart and Winston, Inc.,
19671, pp. 154-5, 302; and J. Fred Weston and Eugene F.
Brigham, Managerial Finance (3rd ed., New York: Holt, Rinehart
and Winston, Inc., 1969), p. 556.

 

10
The disadvantages of listing are enumerated as:
l. The loss of management control;
2. The firm is under public scrutiny;
3. Reporting requirements are too onerous;
4. Listing imposes an additional expense burden;
5. Management may over-emphasize the short-run;
6. The loss of broker support;
7. Vbluntary delisting is almost impossible.

The foregoing lists are representative of the beliefs
held in the financial community at the time of their writing.
However, within the past two years a number of changes have
occurred that may have some bearing on these beliefs.

These changes are detailed in chapter two; however, it
should be noted here that the "central market“ concept and
use of a "composite" tape still allows for the identification
of the market in which the stock is traded, i.e., the over-
the-counter market, the New York Stock Exchange or the

American Stock Exchange.14

Furthermore, the changes do not
require the abolution of the exchanges' trading floors even
though computer, stock transfer, and various other exchange
staff services are integrated.15

Although the foregoing beliefs (on the advantages and
disadvantages of listing) are generally held throughout the

financial community to be true, no references to supportive

 

14The Wall Street Journal, December 20, 1972., p. 18.

15The Wall Street Journal, December 1, 1972, p. l.

 

I")
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11'

11
research are made by the authors. Finally, given that cer-
tain advantages or disadvantages may be true, such as,
"listing imposes an additional expense burden," no one has
determined by researching the opinions of eligible firms
whether or not these assertions are relevant decision-making

variables.

Statement of Problem

 

This study investigates the listing decision activity
of firms which listed in 1969 or 1970 on the American or the
New York stock exchanges and firms which have been eligible
since 1969 for either of these exchanges but have refrained
from listing.

The research attempts: 1) to ascertain the crucial
variables that are analyzed and evaluated by firms; 2) to
learn which variables are given the greatest emphasis in
the choice of markets; 3) to determine those individuals
or groups who tend to have the strongest influence on the
listing decisions; and 4) to develop a multiple discriminant
function that classifies firms as either listers or non-

listers.

Hypothesis

 

Underlying this research is the concept that executive
perceptions can be used to determine which companies are most
likely to list their stock. These perceptions deal with the
efficacy of the exchange market regarding changes in owner-

ship base, the marketability of stock, loss of sales support;

 

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12

and with how executives value the opinions of other company
officers, the board.of directors, commercial and investment
bankers, lawyers and institutional investors. The research
hypothesis rests on the premise that these types of variables
can be identified and utilized as a means of discriminating
between listed and unlisted companies. Specifically, the
hypothesis can be stated as:

Unlisted and listed companies can be identified and
classified based on how executives value the opinions of
professional finance and business personnel and on how execu-

tives perceive the efficacy of the exchange trading market.

Methodoloqy16

 

This research is based on 311 responses to a mail
questionnaire survey undertaken between August, 1971 and
December, 1971.

Companies newly listed on the American or the New York
Stock Exchanges in 1969 and 1970 and companies reported in

the November, 1969, Standard and Poor's Index to Stock and

 

Bond Reports, that met the numerical listing standards of

 

either exchange by 1969, are included in this research.
The responses were coded, transferred to punch cards

and tabulated. The survey findings were then subjected to

the multivariate statistical tests of cluster analysis,

factor analysis and multiple discriminant analysis in order

 

16A thorough treatment of the methodology is given in
Chapter III, "Research Design."

13
to consider simultaneously the interactive effect among var-

iables.

Potential Contributions of the Research

 

The principal contribution of this research is the devel-
opment of a body of knowledge about the listing decision.

The theory of the firm and economic decision making are
supplemented by this study's examination of the internal oper-
ations of the firm.

The primary benefits of this study are: The updating,
revising and augmenting of the level of knowledge about an
infrequent but critical corporate decision; the more efficient
allocation of resources by the exchange's stock list depart-
ment; and the utilization of the results of this research by
executives of smaller, growing companies to have a basis of
comparison with more experienced companies having similar
characteristics, and to reduce their search time for the

most heavily weighted variables of the listing decision.

Limitations of the Study

 

This research consists of companies which were eligible
for either the American or New York Stock Exchanges by 1969
and companies which were newly listed on these exchanges in
1969 and 1970. However, only companies in divisions A,B,C,

D,F,H,I and J of the Standard Industrial Classification System

Cu

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QC 0 f Flu I

14
were included.17 Division E (consisting of transportation,
communication, electric, gas, and sanitary services) and
Division G (consisting of finance, insurance, and real estate)
were excluded from this research primarily due to their unique-
ness which Congress recognized in the 1934 Securities and
Exchange Act when it allowed federal agencies other than
the Securities and Exchange Commission to supervise and regu-
late their reporting requirements and responsibilities under
the Act.

The analysis is confined to eligible or newly listed
companies. It does not attempt to answer why firms transfer
from the American Exchange to the New York Exchange. Nor
does it attempt to answer why companies list on the New York
Exchange, having by-passed the opportunity to list on the
American Exchange. The comparisons are made within exchange
eligibility requirements. Firms eligible for the American
are compared with firms listing on the American Exchange
(and are referred to as the American company group) whereas
firms eligible for the New York are compared with firms list-
ing on the New York Exchange (and are referred to as the New
York company group). Since the comparisons are made within,

and not between, exchange eligibility requirements, the

 

17
The Standard Industrial Classification System will be

explained in the Methodology section; however, the contents

of each included division are listed here: A: Agriculture,
forestry, and fisheries; B: Mining; C: Contract Construction;
D: Manufacturing; F: Wholesale and Retail Trade; H: Services;
I: Government; and J: Nonclassifiable establishments.

 

(N

(n

15
conclusions are applicable only within an exchange classif-

ication.

Organization

 

The remainder of this study is divided into four chap-
ters. Chapter II presents recent changes that have taken'
place in the securities markets, followed by a comparison
of the over-the-counter markets with the exchange markets.
Chapter III contains a comprehensive presentation of the
research design and methodology employed.

The presentation of findings are reported and discussed
in Chapter IV. The results are summarized in tables,
supported by details given in the appendix. Chapter V
contains the conclusions of the study and implications for

further research.

1.!“

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CHAPTER II

THE OVER-THE-COUNTER AND THE EXCHANGE MARKETS

Background

In the United States the securities markets that firms
evaluate are often divided into two broad categories: The
over-the-counter markets and the organized securities ex-
change markets, which consist of the national and regional
stock exchanges.1

Companies listed on exchanges were brought under the
regulation of the Securities Exchange Commission and under
the registration requirements of the 1933 Securities Act by
the passage of the Securities Exchange Act of 1934.

The passage of these two acts created substantial dif-
ferences between the over-the-counter and the exchange mar-
kets. Listed companies were required to register their
stock and were subjected to proxy solicitations, trading
procedures, insider reports, and other periodic financial

reporting requirements. The substantial differences fre-

quantly encouraged over-the-counter traded firms to remain

 

1There is also the "third" or "off-the-board" market
which consists of nonmember firms that do not charge regular
commissions on listed stocks. Details on the third market
may be found in: Frederick Amling, Investments, 2nd ed.
(Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1970): PP. 250-
251; and Lee Silberman, "Critical Examination of SEC Proposals,‘
Harvard Business Review, Vol. XXXXII (November, 1964).

 

16

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t

H: .u.
PU
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r\

hu.

.1

 

l7
unlisted since they were not covered by the reporting re-
quirements of the act. However, with the passage of the
1964 Securities Acts Amendments, the differences between the
two markets were narrowed. This narrowing was brought about
when companies with $1,000,000 in assets or 750 stockholders
(reduced to 500 by July 1, 1966) were required to register
under Section 12 of the 1934 Securities Exchange Act.
Unlisted companies that must register under Section 12 are
now subjected to the same reporting requirements demanded of

listed companies.2

Changes in the Securities Markets

 

Dramatic changes have taken place in the over-the-counter
market since early 1971, and like the Securities Acts
Amendments, have tended to make available for investors
additional information on a more timely basis. For example,
on February 8, 1971, the bid and ask prices of approximately
2400 over-the-counter traded stocks were electronically re-
corded and transmitted through the National Association of
Securities Dealers Automated Quotations (NASDAQ) system.3
By December 31, 1971, nearly 3000 stocks were included in the
system. Secondly, NASDAQ OTC Price Indices, patterned after

the Dow Jones averages, were developed and on May 17, 1971,

 

2Companies not required to register are not subjected
to the reporting requirements of the acts; however, they are
somewhat regulated under the Blue Sky Laws of the state of
incorporation.

3NASDAQ_an_d_the OTC (Washington, D. C.: National
Association of SecurIties Dealers, 1972), p. 18.

 

—.....

 

18

seven of these indices were introduced.4 And thirdly, the
week beginning November 1, 1971 marked the first time that
NASDAQ presented volume data.5 Prior to November, 1971,
volume information was not available through NASDAQ nor any
other source.

1971 was also the year for proposing major changes in
the structure of the securities markets, changes that could
affect the exchange markets as well as the unlisted markets.
The most sweeping of these proposed changes is the idea of a
"composite tape" to record transactions for a "central market-
place."

The Securities and Exchange Commission in a "Policy
Statement on the Future Structure of the Securities Markets"
indicated its definition of a central marketplace: "It is
generally agreed that action must be taken to create a single
market system for listed securities.... The term “central
market system" refers to a system of communications by which
the various elements of the marketplace, be they exchanges
or over-the-counter markets, are tied together."6

NASDAQ is thought by many to have the facilities to

form the nucleus of this communication system.7 However,

 

4The Commercial and Financial Chronicle, April 20, 1972,
p. 1.

5NASDAQ and the OTC, p.18.

 

6Policy Statement byythe SEC on the Future Structure of
the Securities Markets quoted in Barron's, Feb.fl28, 1972, p. 3.

 

7Articles supporting NASDAQ's potential may be found in
The Wall Street Journal, Feb. 5, 1971, p.22; Barron's, Mar. 8,
1971, p.3; and BarronTE, Feb. 28, 1972, p.3.

 

19

that does not mean that this system will be selected nor that
the listed and the unlisted markets will merge.

It may not be selected because both the American and the
New York exchanges have proposed electronic systems. '
Secondly, as will be discussed later in this chapter, there are
broad differences between the listed and unlisted markets in
their methods of reporting prices and volume.

A national securities communication system does not require
the markets to be merged nor does it mean that exchanges will
lose their identity if included in a "central marketplace."

As one source indicated, a central communication system "could
be set up in 'tiers' so that such matters as listing standards
for stocks and capital requirements for member firms could be
more stringent, say, for Big Board 'tiers' and less so for

those of the current regional exchanges."10

In his recent study of the New York Stock Exchange, Mr.
William McChesney Martin, Jr. does not recommend the merger of
the unlisted and listed markets. In fact, he believes that a
great deal of autonomy should be left to each of the exchanges

11

joining a national system. Mr. Martin supports the applica-

tion of equal regulations for all members of a national system

 

8The Wall Street Journal, March 29, 1972, p. 2.
9The Wall Street Journal, May 18, 1972, p. 3.
loThe Wall Street Journal, April 30, 1971, p. l.

11The Wall Street Journal, October 15, 1971, p. 3.

 

an

20

and recommends that all trades be shown on a composite tape.
The final structure of a central marketplace or of a com-

posite tape is still uncertain though progress has been made on

its conceptual development. The practical problems of imple-

menting a central marketplace were obvious at the Spring 1972

meeting of the Securities Industry Association.12 Agreement

could not be reached on the following items:

Timing of introduction.

Common rules for members.

Capital requirements for marketmakers.

Negotiated rates.

Institutional membership.

Block trading.

Clearing operations.
Consolidated tape characteristics.

GDQONU'chWNH

Even if a composite tape or a national communication
system is operationally feasible, there are still differences
of organization and methods of doing business that firms need
to evaluate if they are to choose the market, exchange or "tier"

that is best for their stock.

A Comparison of the Over-the-Counter and Exchange Markets

 

The chief differences between the over-the-counter markets
and the listed or exchange markets lie in 1) Organization,
2) Methods of doing business, and 3) Membership standards and
publicity.13

 

12The Commercial and Financial Chronicle, April 30, 1972,
p. 2.

13Jules I. Bogen (editor), Financial Handbook (revised
printing, New York: The Ronald Press, 1957), p. 67. Professor
Bogen suggested organization and methods of doing business:
however, I believe that current circumstances require a third
category.

 

In

Me

21

Figure 2-1 summarizes a comparison of the characteristics

of the two markets and the discussion which follows parallels

the items shown.

 

Over-the-Counter Exchange Markets
Characteristic Market, NASDAQ Stocks Listed Stocks
Organization
Structure Loosely Knit Tightly Organized
Location Numerous Dealer Exchange Floor

Methods of Doing
Business
Type of Sale
Transaction Costs
Price Quotes

offices
throughout
country

Negotiated
Mark-Up Basis
Representative
Bid and Asked

New York City

Auction
Commission Basis
Actual Prices

 

Market Makers Two or More One

Volume Reporting
per transaction no yes
daily total yes yes
number of shares duplicate count actual

possible
block trades deletion possible yes
reported
Membership Standards
and Publicity

Criteria for Inclusion
market standards yes yes
reporting require-
ments yes yes
fees paid by no yes
company

Publicity
newspapers most stocks all stocks
electronic system yes yes
tape no no

Figure 2-1

A Comparison of the Characteristics of the Over-the-Counter and
the Exchange Markets

I
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10c;
the

bro}

tior

oft

 

22
The Over-the-Counter Market

Organization

 

Structure
The over-the-counter markets consist of all the facili-
ties devoted to effecting securities transactions which are

14 Little of the over-the-counter

not executed on exchanges.
business is transacted by direct personal contact as this

market consists of loosely-knit units.

Location

The thousands of brokers and dealers located throughout
the United States are linked together by telephone, telegraph,
and the NASDAQ system.

Prior to NASDAQ there was a marked degree of regionalism,
primarily because most brokers and dealers operated in a local
area in terms of both the securities they handled and the

15 NASDAQ has reduced some of

location of their customers.
the emphasis on regional securities handling by enabling a
broker or a dealer to quickly obtain and disseminate informa-

tion about securities of companies located in almost any area

of the United States.

Methods of Doing Business

Type of sale.--The over-the-counter market is principally

 

a negotiated market with negotiations taking place between the

 

14Irwin Friend, et al. The Over-the-Counter Securities
Markets (New York: McGraw-HiII’BoEk Company, Inc., I958Y,
p. 4.

15

 

Ibid., p. 10.

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act

ORV

 

23

16 There may also

customer and either a broker or a dealer.
be negotiations between brokers and dealers or between
dealers and other dealers.

The dealer may act as a broker (agent) or as a dealer
(principal); however, the customer has the option of speci—
fying the legal role of the broker-dealer firm in a trans-
action. The firm is required by law to reveal its legal
role in the transaction.17

The terms "broker" and "agent" are used interchangeably,
that is, as a firm or a person who transacts orders with the
risk remaining in the account of the principal. A dealer
acts as a principal and assumes all risk.

A dealer can handle purchase orders from a customer in

any of three ways:

 

16"The term 'broker' means any person engaged in the bus-
iness of effecting transactions in securities for the account
of others, but does not include a bank." "The term 'dealer'
means any person engaged in the business of buying and selling
securities for his own account, through a broker or otherwise,
but does not include a bank...." U.S. Congress, House,
Securities and Exchange Commission, Securities Exchange Act
of 1934 as Amended to July 291 1968, 73d Congress, 1968, p. 2.

l7Irwin Friend, et al. The Over-the-Counter Securities
Markets (New York: McGraw-Hill Book Company, Inc., 1968),
p. 11.

24

1. If a dealer “makes a market" in a particular
stock a customer wants to buy, he can sell him
the stock out of his own inventory.18

2. When a dealer gets the order, if he doesn't make
a market in that particular stock, he can act as
the customer's agent and buy it for him from some
other dealer who does make a market in that stock,
or from someone who owns the security and wishes
to sell it.

3. When the dealer gets the order, he can purchase
the security for his own account from a dealer
who makes a market in that security, or from
someone who owns the security, and re-sell it
to his customer.

Transaction costs.--When a broker acts on a customer's

 

behalf, he charges only a commission. When a dealer sells
securities to his customers, he does not charge a commission.
A dealer makes his money from the mark-up on his merchandise.
When the mark-up exceeds what the commission would be, then
a "profit" opportunity may exist for the dealer.

The dealer's mark-up is limited by two constraints:
one, other dealer competition, and two, the National

Association of Security Dealers (NASD) five percent mark-up

 

18"The phrase 'to make a market' means that the dealer
creates and maintains a market in a security. A dealer is
said to 'maintain' a market in a security when he is known to
be willing at all times to buy or sell that security usually
for his own account and risk, at the prices he quotes." Leo
M. Loll and Julian G. Buckley, The Over-the-Counter Securities
Markets (2nd ed.; Englewood Cliffs, N.J.: Prentice-Hall, Inc.,
1967), . 146.

19rbia., p. 156.

 

‘30!
the
gre

ROI
Prc

25

policy.20 Within these constraints it remains possible for
a dealer's mark-up to exceed a broker's commission (that is
not the case with listed stocks as only a commission may be
charged to the public).

In both the over-the-counter and the listed markets,
the majority of representatives of securities firms are in
fact assuming a dual role in their dealing with the public,
that of an advisor and that of a merchant.21 Because of the
opportunities for increased revenues under the mark-up system,
a dealer may tend to promote more interest in over-the-counter
traded stock than listed stocks, other things being equal,

when a customer seeks his advice.

Price quotes.--The NASDAQ system segments the over-the-

 

counter market into two groups: Members of the system and
non-members.22 Since all companies in this study are members
and since national and New York newspaper publicity on price

quotes emanate from this system, the NASDAQ types and methods

 

20A five percent mark-up policy has been adOpted by the
National Association of Security Dealers as a guideline. The
dealer is not necessarily entitled to always charge five per-
cent, nor is he always limited to five percent or less. "The
most important point the broker/dealer should keep in mind
when marking up securities for resale to investors is that
the mark-up must not be UNFAIR." Loll and Buckley, p. 151.

21Friend, et al., p. 28.

22Quotes on non-member company stocks are not instantan-
eous but are available in the pre-NASDAQ fashion, i.e., through
the Pink Sheets of the National Quotation Bureau or by tele-
graph or telephone contact with dealers. Communication of
price quotes is the essential difference between members and
non-members as "NASDAQ does not change the actual trading
process." NASDAannd the OTC, p. 22.

 

of c:

oper

Pric.
Furt]
level
A re*
it a1
Crea1

10w 5

quote

Pins

not 0
9011c
Ased I
risk ‘

26

of computing quotes is discussed here.

NASDAQ is a computerized communication system which

operates on three levels.23

Level one delivers current representative bid and
asked prices by selecting a median quote from
among the dealers making a market in a specific
stock.

Level two serves the needs of two types of users:
1. Broker/dealers retailing OTC securities to

the public, and 2. Large-scale professional

order executers. The quotes of market makers

in a specific stock are ranked in groups of five
according to the best prevailing bids or offers.
Level three contains all level two information and
in addition enables the dealer to enter or update
quotations on the stocks in which he makes a
market.

The price quotes viewed by the public are not actual
prices, but are representative, median bid and asked quotes.
Furthermore, only retail broker/dealers who subscribe to
level two services see the current quotations of market makers.
A retailer can quote the stock at the median price, purchase
it at the asking price of the lowest market maker thereby
creating a profit opportunity equal to the spread between the
low and the median quotes.24

Level three allows the market maker to change his

quotes; however, in September 1971, the NASD instituted a

 

23NASDAQ and the OTC, pp. 20-23.

 

24The hypothetical mark-up would consist of the spread
plus a commission. The actual mark-up in this case is limited
not only by other dealer competition and the five percent
policy, but also by another NASD rule which says that mark-ups
need not be equal to five percent and should be related to the
risk involved for the dealer.

27
rule requiring market makers to execute orders for at least
100 shares at their prevailing quotes. Prior to September,
1971, dealers sometimes refused to honor their quotes.25

Market makers.--At least two dealers must make a market

 

in each NASDAQ stock. Frequently, there are five and some-
times as many as 20 or 30 competing dealers making a market.
The more dealers making a market, the larger the capital
resources.26 The combined capital of a dozen or more compet-
ing dealers may greatly exceed the capital resources of an
individual specialist trading in a similar listed security.27
This type of dealer rivalry is purported to have "a
beneficial effect on supply and demand because of the inter-
action between competing dealers which complements their
28

merchandising activities and contact with investors."

Volume reporting.--Individual transactions are not re-

 

ported either in the NASDAQ system or in the press. Daily

 

25Barron's, Feb. 28, 1972, p. 3.

 

26Each dealer must have net capital resources of the
lower of either $50,000 or $5,000 for each security in which
he is registered.

A specialist on the American Stock Exchange must have
the higher of either $100,000 or sufficient capital to buy
20 units (normally 2000 shares) of each security in which he
makes a market. A specialist on the New York Exchange must
have capital requirements which are the greater of a) $500,000
or b) 25% of the position requirements, where the position re-
quirements means that he must be able to buy 50 units (normally
5000 shares).

27NASDAQ and the OTC, p. 12.

281bid., p. 12.

Pax-

volume
totals
may be
where
daily
to exc

shares

Member

C

M
each f
shares
making
T.
as the

Variou:

\
2!

the Ove
m

3|
a 19915
and bel
the mar
maYr W1
blOCk I
Ats re;
the Dec
SECUrit

28

volume totals are available; however, on occasion these
totals may be either overstated or understated. The totals
may be overstated where volume includes "some duplication

"29 And

where NASDAQ market makers traded with each other.
daily volume may be understated when the dealer is permitted
to exclude block purchases from his reports; at the time the

shares are sold, he includes the volume in his reports.30

Membership Standards and Publicity

Criteria for inclusion.

 

Market standards.--To be included in the NASDAQ system
each firm must meet minimal market standards dealing with
shares outstanding, number of shareholders, number of market
making dealers, bid prices, and asset value.

Table 2-1 lists the NASDAQ numerical criteria as well
as the criteria for quotes and volume figures to appear in

various newspapers.

 

29The Wall Street Journal masthead that appears above
the Over-the-Counter quotations contains this quote. The

Wall Street Journal (Midwest Edition), June 8, 1972, p. 22;

 

 

30Schedule D of the NASD By-Laws provides that "where
a registered market maker purchases a block of a security
and believes that disclosure of the purchase could disrupt
the market in that security the registered market maker
may, with the prior approval of the Corporation, exclude
block purchases from its reports and include the volume in
its reports only as the shares are sold." A block transaction
is any single transaction whose value exceeds $25,000. From
the December 18, 1970, letter of the National Association of
Securities Dealers, Inc., to all Members and Branch Offices.

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30

Reporting requirements.--NASDAQ reported firms must sub-
mit a current annual report and have a current form 10K on
file with the S.E.C. prior to being included. For continuing
inclusion, companies must submit annual reports and agree to
report immediately any drastic changes in the total shares
outstanding. It is suggested but not mandatory that companies
submit quarterly reports.

Fees paid by company.--Companies whose stock is reported
in the NASDAQ system are not required to pay a listing or
any type of fee.

Publicity.--The two vehicles of communicating relatively
current information on volume and prices are: l) the NASDAQ
system, and 2) daily or weekly newspapers. To be included
in newspaper lists of over-the-counter traded stocks, a
security must first be part of the NASDAQ system.

Table 2-1 shows that except for the Local list, standards
for newspaper publicity exceed standards for inclusion in
NASDAQ. Therefore, the public is not always able to obtain
daily newspaper information on all stocks included in the
NASDAQ system.31

All price and volume information on NASDAQ stocks are
processed electronically; however, there is no tape on which

the individual transactions are displayed.

 

31Furthermore, if a stock falls below one of the minimum
NASDAQ standards, it is automatically deleted by the computer
for that day from the information sent to the wire services.
Deletion from the wire service's reports is then a second
reason why information is not available for newspaper publica-
tion.

rn

CL

of

are

mea:

as}:
trar
With
Char

and

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l

A

31
The Exchange Markets

Organization
Structure

The exchanges are highly organized markets which provide
a central trading place where brokers and dealers regularly
meet and transact business, set up rules and regulations
governing the conduct and finance of their members, provide
publicity for transactions in securities and, through restric-
tion on the listing requirements and requests for filing
current information, seek to establish standards for issues
of securities which are traded.

The term "exchange" is defined as:

any organization, association, or group of persons,

whether incorporated or unincorporated, which consti-

tutes, maintains, or provides a market place or fac-

ilities for bringing together purchasers and sellers

of securities or for otherwise performing with respect

to securities the functions commonly performed by a

stock exchange as that term is generally understood,

and includes the market place and the market facilities

maintained by such exchange.3

Each exchange consists of memberships or "seats" that

are held by "members" of the exchange.33 The different types

 

32U.S. Congress, House, Securities and Exchange Commission,
Securities Exchange Act of 1934 as Amended to July 291 1968,
73d Congress, 1968, p. 2.

33"The term 'member' when used with respect to an exchange
means any person who is permitted either to effect transactions
on the exchange without the services of another person acting
as broker, or to make use of the facilities of an exchange for
transaction thereon without payment of a commission or fee or
with the payment of a commission or fee which is less than that
charged the general public, and includes any firm transacting
a business as broker or dealer of which a member is a partner,
and any partner of any such firm.“ U.S. Congress, House,
Securities and Exchange Commission, Securities Exchange Act of
1934 as Amended to July 29, 1968, p.-2T’

of
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32

of members that may be associated with exchanges are: 1)
commission brokers; 2) floor brokers; 3) specialists; 4) odd-
lot dealers; and 5) registered traders.34

Each brokerage firm must have one partner or stockholder
who is an exchange member to transact business on the floor
of an exchange. Frequently, the brokerage firms will own
seats on more than one exchange in order to expedite service
to customers and to earn commissions that may otherwise be

lost.35

Location
The American and the New York Stock Exchanges are

located in New York City.36 These exchanges are national in

 

34Jerome B. Cohen and Edward D. Zinbarg, Investment
Anal sis and Portfolio Mana ement (Homewood, Illinois:
Ricfiard D. Irwin, Inc., I9675, pp. 59-61.

35Since there is no duplication of listing among the
New York, the American, or the National Exchange, a broker-
age firm would find it necessary to be a member of these
exchanges (or be a member of a regional exchange that may
also trade in these stocks) if it wishes to transact exchange
sales on the companies listed.

 

36There are 14 exchanges in the United States; 12 are
registered and two exempted because of the small volume.
The 12 registered exchanges are: American, Boston, Chicago
Board of Trade, Cincinnati, Detroit, Midwest, National,
New York, Pacific Coast, Philadelphia-Baltimore-Washington,
Salt Lake, and Spokane. The exempted exchanges are:
Honolulu and Richmond. Securities and Exchange Commission,
37th Annual Re ort. (Washington, D.C.: U.S. Government
Printing Office, I971, p. 220.

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33

their scope as demonstrated by the size and reputation of

the firms listed and the volume of transactions accommodated.37
The exchange markets are said to be centralized because

all specialists making markets transact their business on

the floor of the exchanges in New York City.

Methods of Doing Business

Type of sale.--The exchange markets are auction markets

 

where prices are determined by a highly organized machinery
for bringing bids and offers together at one place. It is
proffered that "a securities exchange is one of the few
examples of a true auction market. Here there are auctions
on both sides of the market--competing buyers and sellers."38
The Specialist is the individual making a market on the
exchange floor whose two primary functions are: 1) to effec-

tively execute orders entrusted to him by other exchange

members, and 2) to maintain, insofar as reasonably practicable,

fair and orderly markets in the stock(s) which he services.39

In his efforts to maintain an orderly market, a special-
ist often makes both the best bid and best offer in a stock,

as he is expected to risk his own capital by selling at a

 

37The American and New York Exchanges account for 89.3%
of the dollar volume and 90.3% of the share volume of all
registered exchanges for the six-month period ending June 30,
1971. Securities and Exchange Commission, 37th Annual Report.

(Washington, D.C.: U.S. Government Printing Office, 1971),
p. 222.

 

38Bogan, p. 66.

39Now About the Specialist (New York: The New York Stock
Exchange, 1965), p. 3.

K

lower
be wi
opens

and t

norma
ample:

order

CUS'I

'n

broker
ialist
with t
ing 01

bids 5

lr—Q

all lj

34

lower price or buying at a higher price than the public may

40

be willing to pay or accept at that moment. The specialist

Opens the market, operates as both a broker and a dealer,

and transacts business only with other exchange members.41
An investor who wishes to purchase common stock will

normally contact a brokerage firm and deal with the firm's

42

employee, called a registered representative. The customer's

order will usually be processed in the following sequence:

customer to registered to commission to specialist
representative broker

Since the exchanges are auction markets, the commission
broker, as the customer's agent, presents a bid to the spec-
ialist. The specialist attempts to match the highest bid
with the lowest offer (sometimes, as previously noted, by buy-
ing or selling from his account). If there is a matching of
bids and offers, a sale is transacted.

Transaction costs.--A minimum fee commission applies for

 

all listed stocks sold on an exchange unless the dollar value

 

40Cohen and Zinbarg, p. 60.
41Amling, p. 235.

42A registered representative works directly with customers.
He answers their inquiries, offers suggestions and initiates
the processing of their orders. The commission broker trans-
acts business on the floor of the exchange for the customers
of the brokerage firm with whom the commission broker is assoc-
iated. The commission broker acts only as an agent, receiving
a commission for his services.

The floor broker (sometimes called a"$2 broker") owns
his own seat, acts in an agency capacity, and usually is not
directly associated with a brokerage firm as his commissions
are earned by transacting orders for other brokers on the ex-
change's floor.

of the 1
Ta]
the var.
as of J‘
An
standan
costs fc
P_l;i
in the p

high, 10

and low

 

35

of the trade is in excess of $500,000.43

Table 2-2 lists the commission basis which applies to
the various combinations of shares prices and dollar amounts
as of June 12, 1972.

An investor, by applying the appropriate commission
standards, can always determine what will be his transaction

costs for stocks sold on an exchange.

 

Price quotes.--All prices shown on the tape and printed
in the papers represent actual transactions. Each day's open,
high, low and closing prices are shown, along with the high

and low prices for the year.

 

43
Transaction fees may be negotiated when the trade ex-

ceeds $500,000. Rates are always negotiated when listed
stocks are sold in the "third market."

36

TABLE

2-2

COMMISSION RATES OF THE AMERICAN AND NEW YORK STOCK EXCHANGESa

 

Type and Size Minimum
of Orders Dollar Amounts CommissionC
100 Share and
Odd Lots: $ 100 but under $ 800 2.0% plus $ 6.40
$ 800 but under $ 2,500 1.3% plus $ 12.00
$ 2,500 and above 0.9% plus $ 22.00
Multiple Round
Lot:b s 100 up to $ 2,500 1.3% plus $ 12.00
$ 2,500 up to $20,000 0.9% plus $ 22.00
$20,000 up to $30,000 0.6% plus 5 82.00
$30,000 up to $500,000 0.4% plus $142.00

 

Source: Thompson and McKinnon Auchincloss, Inc., Stock Guide,

June, 1972, p.

254.

 

aCommission rates are identical for the American and
New York Stock Exchanges.

bIn addition to the fees shown, there is a $6.00 and
$4.00 charge for the first to tenth round lots and .

the eleventh round lot and above, respectively.

CThe minimum commission on a 100 share order or an
odd lot order need not be more than $65.00.

minimum commission per
round lot order is not
lot commission computed in accordance with the
rate for 100 share orders.

The

round lot within a multiple

to exceed the single round

37

Market makers.--Each listed stock is assigned one market

 

maker called a specialist whose two functions are: l) to effec-
tively execute orders, and 2) to maintain a fair and orderly
market in the stock he services.

The Specialist executes orders by matching the unfilled
buy and sell orders which are recorded in his ”book." In his
efforts to maintain an orderly market, sometimes a Specialist
makes both the best bid and best offer in a stock for his own
account. To prevent the Specialist from profiting by his
"inside" knowledge of the contents of his "book" severe re-
strictions and obligations are imposed upon him. Like the
over-the-counter market makers, the Specialist operates as
both a broker (executing orders for others) and a dealer
(maintaining fair and orderly markets.) "Because of the poss-
ibilities of personal enrichment arising from the strategic
advantage of a dual position, the S.E.C. has long had under
consideration segregation of the functions of brokers and
«44

dealers.

Volume reporting.--Individual transactions are reported

 

on the tape but are not individually shown in the newspaper.
However, the daily totals include all round lot and block
transactions taking place on the exchange. The volume figures
are neither overstated or understated and represent actual

trades.

 

44Bogan, p. 73.

 

Membershii
grit
Mark

Exchanges

meet to t
Tab]

during ti

of this i

on the Ne

listing <
for the j
inclusim
The
Segments
York Sto
Market.
Rep
American
Quarten

of all IT

38
Membership Standards and Publicity

Criteria for inclusion.

Market standards.--The American and the New York Stock
Exchanges have minimum numerical standards that firms must
meet to be eligible for listing.

Table 2-3 portrays the numerical standards for listing
during the period covered by this research. A comparison
of this table with Table 2-1 shows that standards for listing
on the New York Exchange are significantly higher than for
listing on the American Exchange. And that listing standards
for the American are significantly higher than standards for
inclusion of over-the-counter stocks in the NASDAQ system.

The vast differences in listing standards effectively
segments the national exchanges into two markets: The New
York Stock Exchange Market and the American Stock Exchange
Market.

Reporting requirements.--Companies listed on either the
American or New York Exchange must submit annual reports and
quarterly reports on sales and earnings as well as six copies

of all materials sent to shareholders.

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40
Other circumstances which require submission of reports
to the exchange staffs are:
1. Changes in the following:
Character of the business
Officers or directors
Affairs and operation (that would significantly
effect investment decisions)
PrOperty or stock held (in itself or in
subsidiaries)
Removal of collateral
Deminution of stock in market
2. Required reports or actions:
Upon demand by exchange
Closing of transfer books (10 day notice)
Solicitation of proxies
3. Other requirements:
Transfer agent and registration office in New
York City
Nature of changes in transfer agent or

registering
Sufficient supply of stock certificates

45

Essentially, what is required, in addition to the
routine reports, is the timely and adequate disclosure of
corporate news. Unfounded rumors must be quickly disspelled,
and any news or information that could affect materially the
market for the companies' securities must be released promptly
to the public.

Fees paid by company.--Each listed company must pay an

initial listing fee and subsequently continuing annual fees

must be remitted to the exchange.

 

45This list, while not inclusive, is representative of

the types of reports and circumstances necessitating reports
to be submitted.

 

for

LI

Fees

Init

Cont.

a.
A fi:
two I
Cent
mill:

0f 81.
Share

A

41

Table 2-4 shows the initial and continuing annual fees

for different amounts of common stock listed on the exchanges.

Table 2-4

LISTING FEES OF THE AMERICAN AND NEW YORK STOCK EXCHANGES

 

 

Fees New York American

 

Initial Listing Fees

Fixed
Minimum $15,000 3 250
Maximum a c

Variable Shares Listed:
100,000 $15,000 $ 1,000
300,000 $18,000 $ 3,000
500,000 $20,000 $ 5,000
1,000,000 $25,000 $ 8,750
2,000,000 $35,000 $12,500
5,000,000 $47,500 $15,250
10,000,000 $60,000 $20,500
Continuing Annual Fee

Fixed
Minimum 3 5,000 $ 500
Maximum b $ 3,500

 

Source: Correspondence with the individual stock exchanges.

aThe maximum fee depends upon the number of shares listed.
A fixed fee of $15,000 plus variable per share fees of: lst
two million shares, 1 cent each; 3rd and 4th million, 1/2
cent each, 5th through 300th million, 1/4 cent each; over 300
million shares, 1/8 cent each; are assessed at time of listing.

bThe maximum continuing annual fee depends upon the number
of shares listed. Up to 3 million shares it is 1/10 cent per
share; above 3 million it is 1/20 cent per share.

cThe maximum fee depends upon the number of shares listed.
Above 2 million shares listed the fee is 1/8 cent per share.

 

P
tively
system
weekly

T
comple
Exchan

A
proces
system

can be

46
uRter
Stocks

C0
II

42

Publicity.--The three vehicles of communicating rela-
tively current information are: l) the Bunker-Ramo telequote
system, 2) the exchange's electronic tape, and 3) daily or
weekly newspapers.

The national newspapers, both daily and weekly, carry a
complete list of all stocks on the American or New York
Exchanges.46

All price and volume information on listed stocks are
processed electronically; through the Bunker-Ramo telequote
system and on the tape, where each individual transaction

can be seen.

 

46Stocks not traded are not deleted as with over-the-

counter quotes but rather are shown under a column captioned
"Stocks not traded."

 

out
The
var
ces.
and

and

in I
com;
ing

Spor

Firs
iabl
evid
tion

CHAPTER III

RESEARCH DESIGN AND METHODOLOGY

This chapter is divided into four sections. The first
outlines the objectives and development of the questionnaire.
The second identifies the dependent, independent, and related
variables which are studied. Section three explains the pro—
cess for selecting companies for inclusion in this research;
and, finally, the fourth section discusses the approaches

and techniques applied in the data analysis.

Questionnaire Objective and Development

 

The questionnaire developed for the research, and shown
in Appendix A, was designed to determine the extent to which
companies may be classified as either listers or non-listers
in accordance with the beliefs executives express when re-
sponding to certain variables.l

Development of the Questionnaire

The questionnaire evolved from three primary sources.
First, a review of the literature indicated that certain var—
iables were relevant to the listing decision. Since no
evidence was available to support or reject the considera-
tion of these variables, they were included in the questionnaire.

Second, discussions with representatives of the various stock

 

1Copies of the questionnaires appear in Appendix A, PP-125‘30-

43

44

exchanges provided other reasons why a company may choose to
list its stock. And three, inquiries to corporate executives
revealed additional variables thought to be relevant to the
listing decision. After reviewing and reflecting upon the
information obtained from these three sources, a pretest
questionnaire was developed.

Pretesting of the Questionnaire

The pretest questionnaire was administered and discussed
with businessmen in the Detroit, Michigan area to obtain
their reaction to and interpretation of the questions asked.
These executives indicated a willingness to answer each ques-
tion. Approximately 25 minutes were required to answer
completely the questionnaire. The questions which required
verbal clarification were rewritten.

The second step in pretesting the questionnaire was to
have it subjected to scrutiny from the faculty and doctoral
candidates in the Department of Accounting and Financial
Administration at Michigan State University. Their comments
and suggestions were utilized in the final questionnaire.

The third step was to select randomly and to survey
companies by mail to test the responses to the pretest
questionnaire. These responses, along with the suggestions
received in step two above, were incorporated into the final
questionnaire. The revised contents and format were pre-
sented to the printer for styling and reduction in print in
order to have an appealing package for surveying company

presidents.

a ~ \« --

Quest

requ:

The I
these

erinI

45

Questionnaire Construction

 

The questions were written to facilitate responses by
requiring the following types of answers:

(yr) check marks

estimates of activity (number of times)

choice of scaled intervals

circling of yes or no answers

estimation of weights (scale given)

handwritten or typed answers for the
two open-end questions

The analytical and statistical techniques applicable to
these types of answers will be discussed in the section cov-

ering the techniques of analysis.

Organization of Contents

 

The questionnaire consists of four pages and is separ-
ated into five parts. The first part requests information
about: the respondent and his background, the responsibili-
ties for investor information, the frequency of financial
reports, contacts with financial analysts, and financial
specialists on the board of directors. These questions were
placed first in order to establish rapport with the respon-
dent prior to his encounter with the detailed second part.

Part two requests the executive to indicate what he
believes would be the effects on his company's operations
and company's common stock if the stock were to be listed
on the American, Midwest, and New York Stock Exchanges.
Twenty-four statements for evaluation of each of these three
exchanges were presented for rating according to the follow-

ing scale:

46

-3 extremely unfavorable
-2 moderately unfavorable
-l slightly unfavorable
+l slightly favorable
+2 moderately favorable
+3 extremely favorable
The third part requests information about the execu-
tive's attitudes towards the various expenses associated
with listing. Six questions were asked to determine whether
or not listing expenses were an important portion of the
listing decision process and to learn which, if any, of the
expenses were considered to be significant decision factors.
Part four requests information on: knowledge of the
company's eligibility for listing or its actual date of
listing; how executives weigh the value of opinions given
to them by various groups or individuals on the listing
decision; discussion with over-the-counter market making
dealers; contacts with exchange representatives; and listing
intentions. The primary purpose of part four is to obtain
information on whose opinion is considered most important in
the firm's listing decision deliberations.
The fifth part contains two open-end questions which
request the respondent to express his opinions about: 1) how
a company should market its common stock, and 2) why his

company listed or refrained from listing its common stock.

The Identification of Variables

 

Dependent Variable
The dependent variable is the type of market chosen for

the trading of the company's common stock.

47

Since this research investigates the comparisons execu-
tives make between the American Stock Exchange and those
over-the-counter companies eligible for it and the compari-
sons executives make between the New York Stock Exchange and
those over-the-counter companies eligible for it, two separ-
ate analyses are made.

In the first analysis the dependent variable is the
stock's trading market: either the American Stock Exchange
or the Over-the-Counter market. In the second analysis the
dependent variable is the stock's trading market: either

the New York Stock Exchange or the Over-the-Counter market.

Independent Variables

The independent variables consist of 33 characteristics
about which executives were asked to express their opinions
if listing were to take place on the American, Midwest or
New York Stock Exchange. Twenty-four of the 33 variables
consist of statements that indicate possible effects on the
company's stock and on the company's operations if the common
stock were listed on an exchange as opposed to remaining

2 The other nine

traded in the Over-the-Counter market.
variables consist of the weights executives believe should
be assigned to the opinions held by company officers and

other professional individuals or groups who counsel execu-

tives on the trading market for their companyb stock.3

 

2See Part II of the questionnaire in Appendix A, p. 126.

3See Part IV of the questionnaire, specifically that
portion that requests the weighting of Opinions, in Appendix A,
p. 127.

 

C1
ar
Ac
Se

ti

in:

Se:

SIC

Cf
FOI-
Of

Me»

36

48
Related Variables
In addition to the dependent and independent variables,

a number of ancillary variables were also studied. These
variables are examined by relating the responses to the trad-
ing market chosen and include data on the company's financial
activity and related programs, the number of contacts with
financial analysts, financial specialists on the board of

directors, and characteristics of the individual respondent.

Selection of Companies for Study

 

Included Industries
Firms incorporated and headquartered in the United States
from the following Standard Industrial Classification Divisions
are included in this research: Agriculture; Forestry and
Fisheries; Mining; Contract Construction; Manufacturing;
Wholesale and Retail Trade; Services; Government; and Non-

4 Firms in these industries which

classifiable Establishments.
are required to register under the 1964 Securities and Exchange
Acts Amendments submit their required reports directly to the

Securities and Exchange Commission and therefore have rela-

tively homogeneous reporting requirements.

 

4Each firm has been classified according to the standard
industrial classification (SIC) code number. If a firm has
more than one SIC number, the number that was selected repre-
sents the primary business in which the firm operates. The
SIC classification system was developed under the sponsorship
and general supervision of the Office of Statistical Standards
of the Bureau of the Budget, Executive Office of the President.
For further information see: U.S. Bureau of the Budget, Office
of Statistical Standards, Standggdlndustrial Classification
Manual (Washington, D.C.: U.S. Government PrintIng OffIce,
1967) , pp. V-XII.

 

 

and
Gas
to

mat
ab]
rec

anc

Inc

sec
88\
tux
prc
Ame
re;
tra
Sec
are

ist
Sec
H01;
Ac

E
tra
Sta

C031-

Of ‘-
Of «
the
rep:
bI 5

49
Excluded Industries
The types of industries excluded are: Finance, Insurance
and Real Estate; and Transportation, Communication, Electric,

5 These industries are eliminated

Gas and Sanitary Services.
to maintain comparability, primarily in the amount of infor-
mation required and the form in which it must be made avail-
able to the public. Firms in these industries which are
required to register with the S.E.C. under the 1964 Securities
and Exchange Act Amendments have their activities and report-

ing requirements supervised and regulated by federal agencies

other than the Securities and Exchange Commission.6

 

5Divisions E and G, respectively, in the Standard
Industrial Classification System.

6The 1934 Act excludes from registration requirements
securities issued by investment companies, securities of
savings and loan associations, securities of certain agricul-
tural marketing cooperatives, and securities of certain non-
profit organizations. Furthermore, the Securities Acts
Amendments of 1964 state that the registration, periodic
reporting, proxy solicitations, and insider reporting and
trading provisions of the Exchange Act relating to all bank
securities (other than securities issued by state banks which
are neither members of the Federal Reserve System nor insured
by the Federal Deposit Insurance Corporations) will be admin-
istered and enforced by federal agencies other than the
Securities and Exchange Commission. (See: U.S. Congress,
House, Securities & Exchange Commission, Securities Exchan e
Act of 1934 as Amended to July 20;.19547 73d Cbngress, 196 ,
pp. 13-14.) Insurance companies are exempt from the regis-
tration requirements provided the company is regulated by its
state of incorporation in certain specific respects.

The reasons for excluding firms in the transportation,
communication, electric, and gas industries are fourfold: l)
the SEC allows that "the reports of any person whose methods
of accounting are prescribed under the provisions or any law
of the United States, or any rule or regulation thereunder,
the rules and regulations of the Commission with respect to
reports shall not be inconsistent with the requirements imposed
by such law or rule or regulation in respect to the same

 

count

study

are e

diffe

class
homOg

porti

are t

M

Corpo

Stock

Subje
and t
dCCQu
not f
ments
make

trieS
retUr:
marke.

hEVQ E
and he
fer GE

50
Other Exclusions

All foreign companies, whether listed or over-the-
counter and eligible for listing, are excluded from this
study.

Companies which have two or more classes of common stock
are excluded from this study due to the uniqueness of the
different classes of common stock.7

Foreign companies and companies having two or more
classes of common stock are removed to preserve the relative

homogeneity of the included companies in terms of both re-

porting requirements and corporate characteristics.

Data Sources Utilized to Develop a Selection Base
The two primary sources employed for selecting companies
are the publications of the stock exchanges and the Index to

Stock and Bond Reports as prepared by the Standard and Poor's

 

Corporation.
The companies that were newly listed on the American

Stock Exchange in 1969 and 1970 were from records prepared

 

subject matter..."; 2) these types of industries are regulated
and therefore oftentimes have particular approaches to both
accounting rationale and to methods of reporting; 3) it is

not feasible to include these industries because of the adjust—
ments to their financial statements that may be required to
make them comparable to other industries; and 4) these indus-
tries are not comparable in the sense that their rate of

return is limited by a regulatory agency rather than in the
marketplace.

7Many of these companies have a class of non-voting stock,
have a class of stock that is almost completely privately held,
and have different prices and dividends and pre-emptive rights
for each class of common stock issued.

51

by the Exchange's Securities Division.8
The companies that were newly listed on the New York

Stock Exchange in 1969 and 1970 were obtained from documents

published by this exchange.9
Companies having over-the-counter traded common stocks

were selected from the 1969 Index to Stock and Bond Reports

 

as prepared by Standard and Poor's Corporation.10 This
source was chosen because specific financial data must be
available in order to determine whether or not a company's
stock meets the minimum numerical listing requirements of the
various exchanges. The required information (with the excep-
tion of round lot shareholders) relating to a company's stock
ownership, financial statistics, and other historical informa-
tion is made public in Standard and Poor's Over-the-Counter
and Regional Exchange Stock reports.

While some bias may enter because of using the Standard
and Poor's Index as the sample base, I believe that the
selection of companies from this index is appropriate for

the following reasons:

 

8Copies of the American Stock Exchange's internal re-
cords for 1969--"New Stock Listings" and l970--"New Stock
Issues" were made available upon request to the Securities
Division.

9Annual Report 1970 (New York: The New York Stock
Exchange, 1970), p. 18; and New York Stock Exchange 1970 Fact
Book (New York: The New York Stock Exchange, 19707, pp. 34-35.

 

10Standard and Poor's Corporation, Over-the-Counter and
Regional Exchange Stock Reports (Stock ReporEs: 3010-6000:

 

Ephrata, Pa.: Standard and Poor's Corporation, 1969).

 

Spe

196
Wis

The
this
Stil

52

1. Listing requirements themselves are biased toward
those firms having a wide distribution of stock
ownership and a sufficient size of operation to
generate relatively broad investor interest.

2. The Standard and Poor's requirements for inclu-
sion in their index was lower than the listing

requirements of all but the smallest stock
exchanges.11

3. Approximately 62% of the 1111 companies whose bid
and ask prices were reported in The Wall Street

Journal on June 30, 1969 are included in Standard
and Poor's 1969 Index.

 

4. Thirty-four of the thirty-five common stocks mak-

ing up the Over-the-Counter Industrial Average
are included in this research.

5. Approximately 66% of the 1045 companies whose bid
and ask prices were available over the Bunker-
Ramo Corporation's Telequote III as of May 1970
are included in Standard and Poor's 1969 Index.

 

1Prior to 1969 Standard and Poor's did not have internal
specific requirements that firms must generally meet in order
to be published in their OTC reports. Beginning in January
1969, the company adopted the following criteria for firms

wishing to
l.

2.
3.

4.
S.

6.

be added to their OTC reports:

At least seven dealers as listed in the National
Quotations Bureau "Pink Sheets."

Daily quotations in The Wall Street Journal and/or
the New York Times.
A saEISfactory EIEw of corporate information, pre-
ferably including quarterly reports unless the
company is in an industry where less frequent
issuance of reports is standard practice.

At least 1,000 stockholders.

At least 750,000 shares outstanding with at least
400,000 shares in the hands of the public.
Preferably, a bid price of at least $10.

These criteria are applicable only to new firms to be added and
this explains why Standard and Poor's Over-the-Counter reports
still contain many companies that do not meet their internal

standards.

3‘

0]

ar

ie

du

0t:

53
Methods of Selecting Companies for Study

Listed Companies

All companies (except those in the excluded categories)
which became listed for the first time on either the American
or New York Stock Exchange in 1969 and 1970 became eligible
for this research.

The total number of newly listed companies eligible for

inclusion is:

TABLE 3-1

NUMBER OF LISTED COMPANIES INCLUDED IN STUDY

 

 

Iifierican —JNEW York CI.
Stock . Stock
Exchange Exchange Totals
1969 122 61 183
1970 92 45 137
Totals 214 106 320

 

Unlisted Companies

The November, 1969 Over-the-Counter and Regional Exchange
Stock Reports index contained information on 1200 companies,
of which 568 were excluded for the reasons previously cited
with the remaining 632 over-the-counter companies being
analyzed for possible inclusion. However, 57 of these compan-
ies subsequently became listed and are included under the count
of newly listed companies. Another 112 companies were removed
due to mergers, bankruptcies, not being public in time, and

other miscellaneous reasons. This left 463 over-the-counter

54
companies for potential inclusion in this study.

To determine which of the 463 companies met the minimum
numerical eligibility requirements of the American or New
York Stock Exchanges, it became necessary to collect certain
financial and historical data for each company.12 After
these data were collected, they were compared to the minimum
numerical listing requirements of the exchanges shown in
Table 2-3.13 The results of this comparison are shown in

Table 3-2 .

 

12The data collected and stored on computer cards
includes:
1. A number for identifying each individual
firm.
2. The firm's SIC (Standard Industrical
Classification) number.
3. Whether the firm is subject to margin re—
quirements.
4. High stock price.
5. Low stock price.
6. Net income.
7. Pre-tax income.
8. Net worth (tangible).
9. Number of shares outstanding.
10. Number of shares publicly held.
11. Number of shareholders.
12. Whether voting or non-voting.
13. Market value of publicly held shares.
14. State of corporate office location.
15. Years in business.
16. Code for local, regional, or national Oper-
ations of firm.
17. Code for number of types of common stock
issued by firm.
18. Miscellaneous category slots (for categories
within categories).
19. Number of round lot shareholders.
20. Pre-tax income - one year back.
21. Pre-tax income - two years back.

13suEraI p' 390

55

TABLE 3-2

OVER-THE-COUNTER FIRMS CONSIDERED AND
THE NUMBER INCLUDED IN STUDY

 

 

Category Considered Included

 

Eligible for the American

Stock Exchange 222 222
Eligible for the New York

Stock Exchange 56 56
Meeting Neither Exchange's

Standards 185 0

Totals 463 278

 

The exchange for which a firm is considered eligible is
the exchange having the highest numerical requirements that
the company can meet.14 These eligibility categories are

viewed as mutually exclusive for the purpose of this study.

 

4The determination of a firm's eligibility for inclu-
sion in this study was done by applying the minimum numerical
listing requirements of each exchange. The exchanges indi-
cate that while they have minimum numerical standards that
other criteria must be met, such as each share of common stock
must be voting, and both exchanges require the issuance of
quarterly reports.

For example, a firm meeting the numerical requirements
of the New York Exchange may still not be eligible for list-
ing if it refuses to release quarterly reports. Yet to
exclude the firm from this study may not be feasible for two
reasons: 1) the firm's management may not wish to issue
quarterly reports in order to respond with the statement "our
stock is not eligible for listing" to stockholders who press
for an exchange listing; in short, to apply criteria other
than numerical for inclusion in this study may be "begging the
question"; secondly, it is not feasible to attempt to apply
those specific details and internal policies regarding listing
standards that are known only within the various exchanges.

56
For example, if a company meets all the numerical standards of
the New York Stock Exchange, it is placed in the New York
eligibility category even though the company is also eligible

for the American Stock Exchange.15

Time Period Covered by Study

Companies eligible for listing by June 30, 1969 or which
became originally listed on either the American or New York
Stock Exchanges in 1969 and 1970 are included in this study.
As a matter of reality, it was assumed that newly listed
companies met the numerical standards of the exchange on which
they listed. To determine whether or not an over-the-counter
company was eligible for listing, the necessary financial
data was collected for the fiscal years ending between July 1,
1968 and June 30, 1969. This period was selected in order
to have reasonable current information while simultaneously
leaving sufficient time for some of the firms to list their

stock before the survey began in July, 1971.

Geographic Location of Companies
The companies are located in 43 different states and the
District of Columbia. The company office address was the
criterion employed to determine the geographic location. There

are no companies in this study having headquarters in Arkansas,

 

15The firm would be placed in the New York category since
it could have listed on the American Stock Exchange (with its
much lower numerical requirements) but had chosen to pass into
a higher eligibility category.

57
Maine, Mississippi, New Mexico, South Dakota, Vermont, and
Wyoming.
Questionnaire Recipients

The introductory letter which accompanied all question-
naires was written to the company president or if this posi-
tion was temporarily vacant, to the chairman of the board.
These positions were chosen because the nature of listing
decision implies that the judgment of the highest corporate

officers is likely to prevail.

Analytical Techniques and Programs

 

Administration

Each company surveyed was assigned a 6-digit number for
purposes of control. A master list of company names and
numbers was utilized to record the date the responses were
received. A duplicate was made of each response and filed
with the return envelope to avoid the repercussions from a
loss of an original questionnaire.

An original request plus two follow-up letters were

written to maximize responses.16

The first follow-up letter
was sent two weeks after the original request was mailed.

In order to approximate the possible differences between re-
spondents and non-respondents, the second follow-up letter

was mailed five weeks after the first follow-up letter. There

 

16Approximately 55.5 percent of the surveyed companies
replied.

58
were no significant differences between the responses from the
three mailings. No further action was taken with the actual
non-respondents; however, the four different types of letters
used in the second follow-up mailing shed considerable light

on why firms did not respond.

Data Preparation

The responses from each questionnaire, with the exception
of the open-end questions, were coded and placed onto two
extra sets of cards which were made to avoid problems if the
original deck were lost. Missing observations were handled
in two ways. One method was to report "no answer given."
The second method was to assign a number that was developed
statistically. In the case of the questions covering the
expectations of an exchange listing the following formula was
employed:

(Ni-Xi + Nj-Xj)/(N1+Nj), where Ni equals the number of
respondents in category i who answered the specific question
and Nj equals the number of questions within the exchange
listing battery answered by the individual respondent and
where Xi and Xj are the means of the category and of the
individual's responses to the exchange listing battery, respec-
tively. In the case of questions on the valuing of professional
opinions, a missing observation was replaced by the mean response

(found within the relevant category) for the specific opinion.

59
Computer Programs
The following programs were utilized to organize the
data, to develop the criteria for appropriateness of certain
programs, to analyze the data, and finally to verify the

results by classifying respondents with a separate program.

ACT Computer Program17

 

The program was applied first in order to obtain a broad
perspective of the responses and to develop a profile of the
individual companies and groups. The following types of in-
formation were available for analysis:

. Frequency counts.

Table percentages between and within groups.
Percentages of totals in each cell.
Theoretical frequencies.

Chi-square with degrees of freedom and con-
tingency coefficients.

U'l-bWNH

The findings were considered to be significant when the
computed chi-square values were larger than the value given
in the Chi-square distribution table at the five percent confi-
dence level for the appropriate number of degrees of freedom.
This type of analysis was insufficient to test and analyze all

of the data and therefore the following programs were run.

Split-Plot Design

 

The split-plot program was utilized to determine in ad-
vance the validity and the practicality of applying multiple

discriminant analysis.

 

17Michigan State University, Computer Institute for Social
Science Research, Analysisof Contingency Tables, Technical
Report Number 14, January 12, 1968.

 

60

A split-plot design with repeated measures or matched
subjects represents an extension of the randomized block
design for experiments having two or more treatments. The
blocks of subjects are composed in such a way that variations
among subjects within each block is less than the variation
among blocks.18

The program provided two sets of information critical
for this research. The first set tested for homogeneity of
variance between firms within blocks. This test was necessary
to determine if it were appropriate to utilize multiple dis-
criminant analysis. The F-max criterion statistic table con-
sulted showed that there is homogeneity of variance between firms
within blocks and that the discriminant analysis assumption of
homogeneity was met. Furthermore, the within-group covariation
and dispersion are relatively equal across groups; a necessary
condition for pooling of variance requirement of discriminant

analysis.

Multiple Discriminant Analysis19

 

The reason for utilizing multiple discriminant analysis

in this study is to be able to predict group membership, that

 

8Roger E. Kirk, Experimengal Design: Procedure§_for the
Behavioral Sciences. (BeImont, CaIifornia: WadsworEh Puinshing
Company, Inc., 1968), p. 245.

 

 

19This program and the following two programs on factor
analysis and cluster analysis were run from the data decks
available through Data Sciences Associates, P. O. Box 71,
Austin, Texas 78767. The Data Science decks were adapted
from: Donald J. Veldman, Fortran Programmingforgphe Behgyioral
Sciences. (New York: Holt, Rinehart and Winston, Inc., 1970T}

 

 

61

is, whether companies are over-the-counter oriented or whether
they are exchange oriented.

The multiple discriminant analysis program is designed
to evaluate similarities and differences among 'n" groups of
respondents and to reveal identifying characteristics of each
group.20

The computer program develops discriminant functions from
the input data (in this study, from the questionnaire responses).
These discriminant functions are solutions for the linear
combinations of predictor variables and enable the researcher
to represent each of the groups by maximizing the among-groups

21 The

sum of squares to the within groups sum of squares.
maximization of these sum of squares ratios minimizes the over-
lap in the distribution of the "M" measurements of the various
groups.

The number of discriminant functions necessary to maxi-
mize the ratio, i.e., minimize the overlap (and thereby
correctly assign a company to its respective group) is one
less than the number of groups studied. The discriminant

functions which are developed reduce the "m" measurements for

each group into group centroids. These centroids represent a

 

20A detailed presentation of multiple discriminant analysis

appears in Chapter IX in C.R. Rao, Advanced Statistical Methods
in Biometric Research (New York: John Wiley & Sons, Inc., I962).

 

21 .
Paul E. Green and Donald S. Tull, Research for Marketlng

Decisions, 2nd ed. (Englewood Cliffs, New Jersey: PrentIce-
HaIl, Inc., 1970), p. 368.

 

 

62
center of gravity or statistically, a mean of the "m" measure-
ments for the groups under study. Since this research involves
the problem of assigning a company to one of two mutually
exclusive groups based on "m" measurements of the company,

only one discriminant function is developed.

Cluster Analysis

 

The purpose of applying cluster analysis is to determine
if there are "natural" groupings of variables by which a mar-
ket is judged by corporate executives.

The objective of cluster analysis is to separate objects
into groups so that each object is more like other objects

22 Since

in its group than like objects outside the group.
cluster analysis is primarily concerned with description
rather than inference, objects rather than variables, and
with relationships among the whole set of data rather than
criterion-predictor relationships, clustering can be viewed
as "preclassificatory."23
The cluster program utilizes a generalized distance
analysis to successively cluster the variables (responses)
and showed all stages of reduction from N one-company groups
to one N-company group. However, since cluster analysis is

concerned with the dual problem of reducing the number of var-

iables, while attempting to maintain most of the information

 

221bid.. p. 433.

23Ibid., p. 434.

63
in the original matrix, the problem is one of finding a
"natural" clustering among the variables. The final number of
"natural” clusters is judgemental and depends upon a reason-
able delineation of each cluster's relevance to the problem

under study.

Factor Analysis

 

Factor analysis was applied to attain a parsimonious
account of the executive's responses to variables that impinge
on the listing decision. Although this technique possesses a
number of potential drawbacks that tend to discourage its use
as a device for making statistical inferences, it can be val-
uable as a data structuring tool.24

In factor analysis the data is not partitioned into
criterion and predictor subsets as interest is centered on
relationships involving the whole set of variables.

Green and Tull describe the principal uses of factor
analysis in the following way:

"The analyst is interested in establishing the
'strength' of the overall relationships among variables
in the sense that he would like to account for the
variation in terms of a smaller set of linear combina-
tions of the original variables. Often his interest
will stress description of the data rather than
statistical inference." 5

Principal component analysis, one of the many techniques

of factor analysis, was the method utilized. This approach

 

24Harry H. Harmon, ModernIFactor Analysis. (Chicago:
University of Chicago Press, 1960), pp. 1-10.

 

25Paul E. Green and Donald S. Tull, p. 403.

64

maximizes the sum of variances of squared factor loadings in
the columns of the variables-by-factors loading matrix. A
varimax rotation develops new axes which explain (in total)
just as much of the common variance as explained by the unro-
tated loading matrix. And if successful, the varimax rotation
tends to produce some high loadings and some near zero load-
ings which facilitate the identification of the prominent
variables in each factor.

The survey questionnaires were factor analyzed using
principal components analysis subjected to varimax rotation.
The factors were then defined on the basis of the highest

variable loadings for each factor.

Classification PrOgram27

This program enables a researcher to assign an individual
or company, on the basis of their characteristics, to one of
two or more groups. Three types of computations and output
are available: 1. Probability of group membership; 2. multiple
discriminant analysis scores; and 3. minimum chi-square values
for each company.28

The chi-square statistic serves as a measure of dissimilar-

ity, that is, a company is said to be more deviant from the

 

26Ibid., p. 419.

27This program was developed by Doctor George E. Manners,
Assistant Professor, Management Department, University of Notre
Dame, Notre Dame, Indiana.

28Since the discriminant scores are available through the
discriminant analysis program and because the probability of
group membership is directly related to the number of separate
groups, only the minimum chi-square output from this program is
utilized and discussed here.

65

"average member" of a group, the larger its chi-square value.
"Conversely, an individual with a small chi-square value with
reference to a group is 'closer' to the average member of
that group, and may hence be said to resemble that group."29

The chi-squares values are computed from the individual
company's deviations from each of the groups against which the
company is compared. The lowest chi-square value is selected
and the company is classified as a member of that group, i.e.,
as being most like a listed or unlisted company.

The minimum chi-square test was utilized to verify the
results of the multiple discriminant analysis approach and
secondly, to avoid merely using the "mid-point” cut-off cri-

terion normally applied after discriminant scores have been

computed for two groups.

Validation Procedures

Classification of Companies
by Questionnaire Repponses

The companies assigned correctly, on the basis of their
questionnaire responses, to their actual group membership
indicates the predictive reliability of the research under-
taken. To determine the statistical significance of the
proportion correctly assigned, the t-test is employed. To
determine which of the individual questions significantly con-

tribute to the correct classification of companies, an F-test

 

29Maurice M. Tatsuoka, Multivariate Analysis: Techniques
for Eduggtional and Psychological Research. (New York: John
Wiley & Sons, Inc.,4197lT} p. 218. '

66

of the differences between group means for each of the ques-
tions is computed. Since this is a test of separate charac-
teristics and not a multivariate test, a significant difference
between means indicates those questions that are able to
discriminate between groups.

To verify and validate the ability of the questionnaire
to correctly classify a company to its actual group membership,
three distinct sets of companies were chosen: 1. Original-
group companies, 2. subsequently listed companies: original-
group, and 3. a special sample of companies newly listed on
the American Stock Exchange in 1971 and the first three months

of 1972.

Original-Gropp Companies

 

These over-the-counter and exchange listed companies were
used to develop the multiple discriminant coefficients. The
discriminant function was subsequently applied to this group
of companies (from which it was developed) and the discriminant
score for each company was computed. The score was then com-
pared to the cut-off criterion and the company was assigned
to either the listed or unlisted group. However, when the
discriminant scores for one sample are derived from the dis-
criminant coefficients developed from that sample, a large

overstatement of companies correctly classified may result.30

 

30Ronald E. Frank, William F. Massy, and Donald G.
Morrison, "Bias in Multiple Discriminant Analysis," Journal
of Marketing Research, Vol. 2 (August, 1965), pp. 250-258.

 

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67

Two steps were taken to alleviate this problem: first, the
minimum chi-square method was utilized to verify the dis-
criminant results; and second, two separate groups, whose
responses were not used to develop the discriminant coeffic-
ients, were classified. These two groups are discussed next.
Subsequently Listed Companies:
Original-Group» '

The original-group companies consisted of new listees in
1969 and 1970 on both the American and the New York Exchange
and of over-the-counter companies which became eligible for
listing on either of these exchanges by June, 1969.

Certain of these over-the-counter companies became listed
in 1969, 1970 and 1971. Those which became listed in 1969
and 1970 were included with the newly listed companies of
those years. The companies which became listed in 1971 were
withheld from the original-group when the discriminant coeffic-
ients were developed. Subsequently, the discriminant function,
and the cut-off criterion, were applied to this group of
companies and their prOportion of correct assignments was
compared to the original-group correct assignment proportion.
Special Sample: Recent
American Exchange Listees

All companies, in the industries relevant to this study,
which became listed on the American Exchange in 1971 and the
first-three months of 1972 were surveyed.

The responses from this sample group were classified us-

ing the discriminant function and criterion developed by the

ori
mun
to

per

tes

68
original-group. This group was classified also by the mini-
mum chi-square method. The assignment results were compared
to the original-group assignment results. T-tests for the
percent of companies correctly assigned were applied to

test the significance of the findings.

CHAPTER IV

PRESENTATION AND ANALYSIS OF FINDINGS

Introduction

 

This chapter is divided into two sections. The first
highlights the responses to all questions by grouping the
answers under related topics. The details supporting the
verbal summaries are given in Appendix B, Tables b-l through
b-70. Section two contains the statistical analysis of two
batteries of questions: The listing battery, which deals
with managerial expectations regarding the effects of list-
ing, and the opinion battery, which concerns the value
management assigns to the opinions of business and financial
specialists. The responses to these batteries are subjected
to multiple discriminant analysis, chi-square analysis,

factor analysis, and cluster analysis.

Presentation of Findingp

 

Responses
Usable questionnaires were received from 259 companies
which included 43 percent of the total questionnaires mailed.
The geographic distribution of returns had a .87 coefficient
of correlation with the distribution of brokerage firms
throughout the country and included 40 states and the

69

 

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W01
ing

70
District of Columbia. Companies from all Standard Industrial
Classification Code Divisions studied returned questionnaires
with two divisions. Manufacturing and Wholesale and Retail
Trade accounting for 61 percent and 16 percent, respectively.
These proportions parallel, in general, the proportions of
stocks already listed. (Details on the responses received,
geographic distribution of responding companies, and the
various classification divisions can be found in Appendix B,

Tables b-l through b-6.)

Respondents' Personal Data

Ninety-three percent of the questionnaires were answered
by the company's chairman of the board, president, vice
president or treasurer. The 46-55 year old age bracket
represented approximately 44 percent of the responses, and
about 65 percent of the respondents were 46 years or older.

About 17 percent of the respondents had less than four
years of college. Thirty-one percent had only a bachelor's
degree, while the remaining 52 percent had acquired course
work beyond the bachelor's degree.

An investment course or seminar was taken since 1964
by approximately 19 percent of the respondents. (Respondent

personal data can be found in Tables b-7 through b-l4.)

Corporate Characteristics

Financial and Historical Data

 

All companies substantially exceeded the numerical list-

ing standards of the exchange group to which they belong.

 

f I

ll

Net
Net

Nun

N um

Nun

71
Tables 4-1 and 4-2 summarize the financial characteris-
tics of the responding companies. Additional details may be

found in Tables b-15 and b-16.

TABLE 4-1

FINANCIAL AND CORPORATE DATA: AMERICAN COMPANY GROUP
(Arithmetic Means in Thousands)

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Net Tangible Assets $16,028 $9,875
Net Income $ 1,934 $1,644
Number of Shares
Outstanding 1,359 1,935
Number of Shares
Publicly Held 843 938
Number of Shareholders 2.4 1.9
TABLE 4-2

FINANCIAL AND CORPORATE DATA: NEW YORK COMPANY GROUP
(Arithmetic Means in Thousands)

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Net Tangible Assets $52,434 $37,399
Net Income $ 7,038 $ 7,265
Number of Shares
Outstanding 2,766 4,298
Number of Shares
Publicly Held 1,823 2,999

Number of Shareholders 3.9 4.8

 

 

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72

Financial Programs and Relations

The final approval for the release of investor informa-
tion is made by the chairman of the board or the company
president in 64 percent of the responding companies. Vice-
presidents or treasurers account for another 24 percent of
those responsible for the release of investor information.
Investor information appears to be the concern of top
management and is not delegated to the lower echelons.

Investor relations programs are maintained by 50 per-
cent of the companies. Eighty-one percent of the responding
companies indicated that they had an individual responsible
for investor relations even though they may not have an in—
vestor relations program. Stock option plans for corporate
executives were offered by 83 percent of the companies;
however, only 41 percent of the companies offered non-
executives an employee stock purchase plan.

Financial specialists on the board of directors averaged
approximately 1.4 per company. Unlisted firms averaged 1.1
per company, while listed firms averaged 1.6 per company.

Market making dealer data were requested from unlisted
companies. A range from two to 30 and a mean of 7.9 dealers
per company was noted.

Institutional holder information on a before and after
listing basis was requested from listed companies. American
listed companies experienced a 452 percent increase and the
New York listed companies experienced a 402 percent increase

in the number of institutional holders within approximately

73
two years after listing. (Details on corporate characteris-

tics may be found in Tables b-l7 through b-26.)

Financial Relations Activity

 

Financial Reporting

Balance sheet information is sent annually by 73 per-
cent of the companies and quarterly by 24 percent of the
companies to stockholders. Income statement information is
sent quarterly by 93 percent of the companies to stockholders.
The financial press and wire services receive balance sheet
information on a quarterly basis from 26 percent of the
companies, and annually by another 58 percent of the compan-
ies. Income statement information is sent quarterly to the
financial press by 93 percent of the companies, and annually
by another 3 percent of the companies.

Proxies are solicited annually by 97 percent of the
companies.

"Other information" is sent quarterly by 33 percent of
the companies, semi-annually by 4 percent, annually by 7
percent, at other times by 33 percent, and never by 9 percent
of the responding companies. Fourteen percent of the companies
did not answer this question. (Details on financial reporting

may be found in Tables b-27 and b-28.)

Contacts with Financial Analysts
Unlisted companies initiate fewer personal and tele-
phone contacts with financial analysts than listed companies;

however, unlisted companies initiate more written contacts

74
with analysts than do listed companies.

Analysts tend to initiate contact more frequently with
listed companies than with unlisted companies, the exceptions
being personal and written contacts made to unlisted New York
eligible companies. (Details on contacts with financial

analysts may be found in Tables b-29 through b-40.)

Interest in an Exchange Listing
Internal Company Discussions

This question was asked of unlisted companies. Eighty-
three percent of the American unlisted companies and 77
percent of the New York unlisted companies answered that
they had discussed listing. Roughly eight percent indicated
that listing had not been internally discussed.

Approximately 79 percent of the American group compan-
ies and 85 percent of the New York group companies indicated
no interest in a Tvoluntary“ delisting Option. Approximately
12 percent of the American group companies and 10 percent of
the New York group companies indicated that they would be
interested in the option of being able to delist voluntar-
ily after a trial period on an exchange. (Tables b-4l through
b-44 detail company internal discussions and interest in a
voluntary delisting option.)

Discussion with Market Making
Over-the-Counter Dealers

 

Discussions regarding listing were made with dealers by
approximately 54 percent of the companies. The dealer's

attitude toward listing of the company's stock was reported

75
as negative by 49 percent of the companies which answered
this question. Dealer attitudes were seen as neutral by
another 20 percent of the reporting companies, and as posi-
tive by the remaining 31 percent of the respondents. Execu-
tives attribute the dealer attitudes to the gains or losses
in commission perceived by the dealers and to the dealer's
assessment of the over-the-counter and the listed markets.
(Dealer discussions and attitude details are in Tables

b-45 through b-48.)

Communication with Exchanges

 

Unlisted companies were asked if they communicated with
exchanges. Fifty-six percent of the American unlisted group
and 62 percent of the New York unlisted group indicated a
positive answer to this question.

All listed and unlisted companies then were asked who
initiated the contact between their firms and the exchanges
and what type of contact was made. A smaller percent of un-
listed companies initiated contact than did listed companies.
The largest percent of contact, initiated by either exchange
on a personal, telephone or written basis, was 35 percent.
It appears that exchanges are contacting only a small por-
tion of their total market of potential listers. (Details
on communications with exchanges are given in Tables b-49

through b-52.)

 

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76
Listing Intentions

Major Exchanges Intentions

 

Unlisted companies were asked if they intend to list
their stock. In the American unlisted group 42 percent
said they will be listing their stock, 37 percent are
undecided, 4 percent answered no, and the remaining 17 per-
cent did not answer or checked off no comment. In the
New York unlisted group, 38 percent indicated they would
eventually list their stock, 35 percent are undecided, 12 per-
cent said they do not intend to list, and the remaining 15
percent did not answer or checked off the no comment box.
Listed companies were offered the opportunity to indi-
cate if they had any further listing intentions on a national
exchange. The answer to this question was relevant to the-
American listed companies which may have the option to move
to the New York exchange. Thirty-seven percent of the
American exchange listed respondents indicated that they
would later move to the New York exchange. Three percent do
not intend to move, 21 percent checked off the no comment box,

and 38 percent elected not to answer this question.

"Dual" Listing Considerations

 

"Dual" listing on a regional exchange is more favorably
viewed by listed companies than by unlisted companies. The
two regional exchanges having the strongest drawing power
are the Midwest Exchange and the Pacific Coast Exchange. The
majority of companies, 55 percent, indicated that they would

not consider a "dual" listing, while another three percent

77
were undecided. (The listing intention details are shown in

Tables b-53 through b-58.)

Listing Request Activity

Only six percent of the unlisted companies indicated
they had requested listing within the past three years.

Listed companies were asked to indicate the exchanges
at which they had requested listing within three years prior
to their listing. Thirty-six percent of the American listed
companies indicated they had requested listing on the New
York exchange. Thirty-two percent of the New York listed
companies indicated they requested listing on the New York
exchange within the past three years. (Listing request de-

tails are available in Tables b-59 and b-60.)

Miscellaneous Questions

When asked whether or not they would be issuing addi-
tional stock, 19 percent of the companies said yes, 33 per-
cent replied no, 20 percent had no comment, 27 percent were
undecided, and 2 percent did not answer the question.

An option of being quoted or remaining anonymous was
offered to each company. Six percent wished to be quoted, 11
percent did not answer this question; however, 83 percent
wished to remain anonymous. Their desire for anonymity is
respected, especially in view of their responses to three
batteries of questions which follow. (Details on the miscell-

aneous questions may be found in Tables b-61 through b-64.)

78
Expenses Associated with Listing
Listing expenses were not seen as a significant consi-
deration by most companies. Only six percent of the unlisted
American company respondents and eight percent of the un-
listed New York company respondents said that listing
expenses precluded listing. However, 17 percent and 8 per-
cent of the unlisted American and listed New York company
respondents, respectively, indicated that listing expenses
are an important portion of the listing decision. (Details
on the five listing expense questions are presented in
Tables b-65 and b-66.)
Executive Expectations Regarding
an Exchange Listing
Listed and unlisted company executives were requested
to rate the exchanges, compared to the over-the-counter
market, on each of 24 items.1 The arithmetic mean of each
item for the unlisted and listed company groups is presented
in Table 4-3 for the American company group and in Table

4-4 for the New York company group.2

 

1Two questions were deleted because they imply "direction"
as well as "intensity"; however, these two questions are in-
cluded in Tables b-67 and b-68. This section and the
statistical analysis section utilize 22 items.

2Each questionnaire contained instructions on a seven-
point rating scale which ranged from -3 to +3. Instructions
which accompanied the scale stated that -3 means extremely
unfavorable, -2 moderately unfavorable, -l slightly unfavor-
able, 0 means no effect when listed, +1 slightly favorable,
+2 moderately favorable, and +3 extremely favorable. To
facilitate computational procedures, the executives' responses
were coded and processed according to the following trans-
formations: -3 = 1; -2 = 2; -1 = 3; 0 = 4; +1 = 5; +2 = 6;

mlv mammmNE

79

 

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80

 

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82

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83

With the exception of the questions dealing with the
"loss of sales support" and "reporting requirements" (and
the "price volatility of stock" question for the unlisted
New York company group), executives, on balance, expect the
effects of listing to be positive, that is, greater than 4.0
on the scale employed. Furthermore, in both the American
and New York company groups, the mean ratings are always
higher for listed companies than unlisted companies.

The differences between listed and unlisted companies
are not positive versus negative but are due to the more
positive expectations held by executives of listed companies.
For example, the expected effects of listing on ownership
base by American group companies are shown in Table 4-3 to
be 4.66 (slightly favorable) for unlisted companies and 5.60
for listed companies (moderately favorable).

The items having means of less than 4.00 indicate that
executives expect the effects of listing on these questiOns
to be negative. However, even in these cases, listed company
means are higher. This implies that listed company executives
hold less negative expectations, for example, on loss of sales
support, than unlisted company executives as shown in Tables
4-3 and 4-4 for the American and New York company groups,

respectively.

 

+3 = 7. An average score of 4.0 implies that executives be-
lieve that listing has no effect, whereas an average of 6.0
implies that listing is expected to have effects that will be
moderately favorable.

 

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84

A univariate F-test of the differences between the un-
listed and listed company group means was computed for each
of the individual items. The probability associated with
the resultant F-ratio is shown in column four in Tables 4-3
and 4-4. The smaller the probability associated with an
item, the more likely is that item able to discriminate
between listed and unlisted companies.

At the five percent level the differences are signifi-
cant for 16 of the 22 items asked to the American company
group. In the New York company group 15 of the 22 items
asked have mean differences that are significant at the five
percent level.

Values Assigned to Opinions of
Business and Financial Experts

Executives of listed and unlisted companies were re-

quested to indicate the value to them of the opinions of

3 The range of

nine professional individuals or groups.
possible weights (opinion values) is from zero to ten with
ten indicating the greatest weight or emphasis. The arith-
metic mean of each opinion value for the unlisted and listed
company groups is presented in Table 4-5 for the American

company group and in Table 4-6 for the New York company group.

The three opinions receiving the highest weights are the opinions

 

3The opinion of Stock Exchange Representatives was inad-
vertently left off the questionnaire sent to listed company
executives. The remaining eight individual or group opinions
are discussed in this section and the statistical analysis
section. The responses to the opinion value questions are
shown in Tables b-69 and b-70 for the American and New York
company groups, respectively.

85

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86

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ii '1 iii Ii!

87
of internal company representatives: the board of directors,
company officers, and the respondents own opinion. The one
exception to this ranking was by the New York unlisted com-
pany executives who ranked stockholder opinions slightly
above their own.

A univariate F-test of the differences between the
unlisted and listed company group means was computed for
each of the individual opinions. The probability associated
with the resultant F-ratio is shown in column five in Tables
4-5 and 4-6. The smaller the probability associated with
an opinion value the more likely is the weight placed on
that professional opinion to be a good discriminator between
listed and unlisted companies.

At the five percent level the differences between
means are significant for three of the eight opinion items
asked to the American company group.4 A fourth opinion,
"your own opinion" would tend to be a good discriminate item
even though it just misses significance at the five percent
level on a univariate test. In the New York company group
four of the eight opinion items have mean differences that

are significant at the five percent level.

 

4This indicates that there are five chances in a hundred
that the unlisted and listed company means came from the same
population. The smaller the chance that the groups means
come from the same population, the better tends to be the
power of that opinion to discriminate between members of un-
listed and listed companies. The power to discriminate does
not necessarily relate to the position or rank of each variable.
Tables 4-5 and 4-6 show that although the rankings are rela-
tively the same within each company group, the means are
sufficiently different to be able to discriminate between un-
listed and listed companies.

 

" 4'" III. III-(.1i ill
Ii. I'll. Ilia]! Eli
Iii“ I’Ii

88

Statistical Analysis

 

A multiple discriminant function was developed to class-
ify companies as either listers or non-listers. Thirty
questions are included in the discriminant equation.5 Twenty-
two questions consist of executive listing expectations while
the remaining eight questions are composed of the values
assigned to the opinions of business and finance specialists.

The coefficients for the discriminant function are
shown in Table b-7l. The format for the determination of
each company's score is:

_ 6
score - xlxl + x2X2 + x3x3 + ...x3ox30

A group centroid or mean is developed for unlisted and
listed companies. A midpoint between the two group centroids
is determined and used as the criterion score for assigning
companies to an unlisted or listed category.

The balance of this section presents the statistical
findings of the American company group responses followed
by the statistical findings of the New York company group

responses.

 

5These thirty questions are shown in Tables 4-3 and 4-5
for the American company group and Tables 4-4 and 4-6 for
the New York company group.

6The capital letters represent the weights answered by
the respondents. The non-capitalized letters represent the
discriminant coefficients for each variable, where each
variable is denoted by the subscript numeral.

89
American Company Group Analysis
Group centroids and midpoints used in the discriminant

analysis classification program are shown in Table 4-7.

TABLE 4-7

DISCRIMINANT SCORES: AMERICAN COMPANY GROUP

 

 

 

 

Centroids
Over-the-Counter LISted
Companies Companies Mid-Point
1.1854 3.5981 2.3917

 

Each company's score is computed and compared to the
mid-point criterion. The company is assigned to the cate-
gory having the centroid to which it is nearest. The
discriminant analysis assignments are compared to the
company's actual group membership to determine whether or
not the company is correctly classified.

The results of the discriminant analysis assignments

are shown in Table 4-8.7

 

7An F-test of the discriminant function's ability to
significantly differentiate between listed and unlisted
companies is given by an F-test of the Wilks' Lambda value,
where Wilks'Lambda measures the non-discriminating power of
the function. Wilks' Lambda is .426 and is tested for its
difference from 1.000, where 1.000 represents no discrimin-
ating power. An F-test of this difference gives an F-ratio
of 5.354 and a probability of .000. Accordingly the dis-
criminate function does contain the ability to differentiate
between listed and unlisted companies.

90
TABLE 4-8

DISCRIMINANT ANALYSIS CLASSIFICATION:
ORIGINAL RESPONDENTS

American Company Group

 

 

 

 

 

Number

of Assignments
Category Total Correct Percent Correct t Valuea
Unlisted
Companies 73 64 87.7 6.44
Listed
Companies 77 67 87.0 6.50
Unlisted
and Listed 150 131 87.3 9.15
a. t = (proportion correctly assigned -.5) é square root of

((05(l-05)) ;N).

The results indicate that executive responses to the
30 questions can be used to determine whether or not a com-
pany is oriented toward listing on the American exchange.

To verify the results from applying the discriminant
analysis methodology a second classification approach was
applied. Minimum chi-square values are computed for the
individual company's deviations from each of the groups
(listed and unlisted) against which the company is compared.
The lower the chi-square value, the less the company de-
viates from the "avera-e member" of that group. The results
of the minimum chi-square classification program are shown in

Table 4-9.

91
TABLE 4-9

MINIMUM CHI-SQUARE CLASSIFICATION:
ORIGINAL RESPONDENTS

American Company Group

 

 

 

 

Number

_gf Assignments '
Category TotaI' Correct Percent Correct t valuea
Unlisted
Companies 73 64 87.7 6.44
Listed
Companies 77 67 87.0 6.50
Unlisted
and Listed 150 131 87.3 9.15

 

a. The t value is computed from the methodology shown in
Table 4-8.

As Table 4-9 portrays, identical results are received
when either the minimum chi-square method or the discrimin-
ant analysis method is applied to the questionnaire responses.

The above results were obtained by applying the two
classification methods to the same data base used in devel-
oping the discriminant function. Since an upward bias is
possible when the discriminant function data base and group
to be assigned are identical, a separate group was surveyed

and classified.8 This was done with 1971 and 1972 listed

 

8The discriminant coefficients and the chi-square data
were developed from the original group of companies which
were eligible for listing by mid-1969 and companies which be-
came listed in 1969 and 1970. The data developed from the
classification programs were applied to a sample of 36 com-
panies which became listed in 1971 and the first quarter of
1972.

92
companies to further test the questionnaires ability to diff-
erentiate between listed and unlisted companies over time.9
The discriminant analysis and minimum chi-square classifica-

tion results for this group are shown in Table 4-10.

TABLE 4-10

DISCRIMINANT ANALYSIS AND MINIMUM CHI-SQUARE CLASSIFICATION
OF 1971 AND 1972 LISTED COMPANIES

 

 

 

 

Number
Classification _of Assignments
Method TotaIi Correct Percent Correct t valuea
Discriminant
analysis 36 28 77.8 3.33
Minimum
chi-square 36 29 80.6 3.67

 

a. The t value is computed from the methodology shown in

Table 4-8.

The smallest percent of correct assignments was 77.8
with a t value of 3.33, indicating that the classification
results are significantly better than 50 percent or a random
assignment.

The multiple discriminant analysis and minimum chi-
square programs offer necessary but insufficient information
on the listing decision making activity of corporate execu-
tives. The discriminating powers of these programs may be

due to the differences in weights assigned to identical

 

9Not only were these companies listed approximately one
year later than the original group but they were surveyed
approximately seven months later.

93
variables, to the consideration of different variables by
the listed and unlisted company executives, or by a combin-

ation of both weights and types of variables.

A Cluster Analyois of the Variables

The purpose of applying cluster analysis is to deter-
mine if there are "natural" groupings of variables by which
a market is judged by corporate executives. Since the cluster
program utilizes a generalized distance analysis to cluster
successively the variables' responses, groups of responses
are formed which contain similar managerial listing effect
expectations. (The rating scale utilized in the questions
on the valuing of professional opinions requires that those
responses be clustered separately.)

The listing expectations variables and their clusters
are shown in Tables b-72 and b-73 for the unlisted and
listed American companies, respectively. Five of the

clusters are almost identical and are shown in Table 4-11.

94
TABLE 4-11

A COMPARISON OF FIVE "LISTING EXPECTATION" CLUSTERS:
UNLISTED AND LISTED AMERICAN GROUP COMPANIES

 

Included in Cluster of:

 

 

 

 

 

 

 

Cluster Cluster Name Unlisted Listed
Number (Expectation Variables) Companies Companies
1. Exchange Effects
Ownership base yes yes
Marketability of stock yes yes
Transactions (volume) yes yes
Effect on share price yes yes
Spread: between bid
and ask no yes
2. Loss of OTC Market Support
Loss of sales support yes yes
3. Roporting Regyirements
Stockholders yes yes
Public yes yes
Exchanges yes yes
4. Newspgper Publicity
Price publicity no yes
Volume publicity yes yes
5. Obtainment of Funds
Company's credit rating yes yes
Access to capital markets yes yes
Advertising value yes no
Loan value of stock yes no

 

Eleven of the 15 variables included in the five clusters are
common to both unlisted and listed companies. In general, it
appears that corporate executives of unlisted and listed com-
panies consider the same variables when selecting a market
for their company's stock. The discriminating power of these

variables, except for the reporting requirements' variables,

95
. . . . . 10
13 due to the difference in their ratlngs.

The professional opinion variables and their clusters
are shown in Tables b-76 and b-77 for the unlisted and listed
companies, respectively. A comparison of these two tables
is shown in Table 4-12.

TABLE 4-12

A COMPARISON OF FOUR "OPINION VALUE" CLUSTERS:
UNLISTED AND LISTED AMERICAN GROUP COMPANIES

 

 

Included in Cluster of:

 

 

Cluster UnlistedI’ Listed
Number Opinion Values of companies companies

1. Company Officers yes yes

Board of Directors yes yes

Your own opinion yes no

2. Over-the-Counter

Dealers yes yes

Investment Bankers yes no

3. Stockholders yes yes

Institutional Investors yes no

4. Legal Counsel yes no

 

Except for one cluster containing the opinion values of com-
pany officers and the board of directors, there is little
similarity between the clusters. The discriminating power
of these variables appears to be due partially to the differ-
ence in ratings and partially to the dissimilar groupings of

the Opinion variables evaluated.

 

10See Table 4-3.

96

A Factor Analysis of the Variables

 

The purpose of applying factor analysis is to learn
which of the variables, individually or in sets, accounts for
the variance in executive expectations and for the variance
in the valuing of professional opinions.11 Since factor
analysis centers on relationships involving the whole set
of variables, it is valuable as a data structuring tool.

The analysis of the factors stresses description of the
data rather than statistical inference.

Five factors, containing 11 variables, explain 69.1
percent of the variance of the listing expectation variables
of the unlisted American companies. Seven factors, containing
14 variables, explain 71.1 percent of the variance of the
listing expectation variables of the listed American compan-
ies.

Although the percent variance explained is approximately
equal for both groups, there are certain variables (question-
naire responses) which are distinct to each group.12

Table 4-13 shows the variables which are common or unique
in the "listing expectation" factors of unlisted and listed

companies.

 

11The procedure employed to determine the number of fac-
tors was to retain factors with an eigenvalue greater than
unity. This is a more restrictive criterion than, say, selecting
sufficient factors to explain 80 to 90 percent of the variance.

12A factor analysis was applied separately to responses
of unlisted and listed company executives. The results are
shown in Tables b-74 and b-75. Table 4-12 was constructed to
present a comparison of the variables which accounted for
the variance reported within each group.

VARIABLES COMMON OR UNIQUE WITHIN THE
FACTORS: UNLISTED AND LISTED

EXPECTATION"

97

TABLE 4-13

AMERICAN GROUP COMPANIES

"LISTING

 

 

 

 

 

 

 

 

 

 

 

 

 

Variables
Unique Within Factors of:
Factor Common to Unlisted Listed
Number Both Groups Companies Companies
1. Exchange Effects
Transactions Marketability
Price Effects
2. Loss of OTC
Market Support Loss of Support Prestige
Volatility Advertising
Value
3. geporting
Requirements:
Stockholders
Public
Exchanges
4. Newspaper Publicity
PublICIty on Publicity
Volume on Price
5. Obtainment of Funds
Access to Capital Analysis of
Markets, Stock
Company's Credit
Rating
6. (No Common Name) Sales of Addi-
tional stock
Merger (ability
to acquire)
Loan value of
stock
7. (No Common Name) Merger (attract-

 

iveness of your
firm to other
firms)

Loss of Sales
Support

 

98

To the extent that executives follow their beliefs
and expectations (and the discriminant analysis indicates
that they follow their expectations), factor analysis may
give a clue to the variables which are most important in
the listing decision.

The variables unique within the unlisted company
responses concern, generally, the desire to "maintain
markets" as evidenced by the factors' contents: market-
ability (saleability), price effects, loss of dealer
support, volatility of stock prices, and analysis of
stock and company. The variables unique within the
listed company factors consist of two general types of
expectations: 1. "attention attracting", and 2. "financial
considerations." The "attention attracting" variables are:
prestige, advertising value, price publicity, and merger
(the attractiveness of the firm if listed). The "financial
considerations" set of variables include: sales of
additional stock, merger (listed company's ability to
acquire other firms), loan value of stock, and the com-
pany's credit rating.

The variables which are common or unique in the
"opinion value" factors of unlisted and listed companies
are shown in Table 4-14. (The factor analysis results for
unlisted and listed companies are shown in Tables b-78

and b-79, respectively.)

99
TABLE 4-14
VARIABLES COMMON OR UNIQUE WITHIN THE "OPINION VALUE"

FACTORS: UNLISTED AND LISTED
AMERICAN GROUP COMPANIES

 

 

 

 

 

Variables
Unigue Within Factors of?
Factor Common to Unlisted Listed
Number Both Groups Companies Companies
1. Company Officers
Board of Directors
your own opinion
2. Institutional Stockholders Legal
Investors Counsel
3. Over-the-

Counter Dealers
Investment Bankers

4. Legal Counsel

 

The primary difference between the two groups is due to
factor number three for the unlisted companies which include
the opinions of over-the-counter dealers and investment
bankers and accounts for 19.1 percent of the variance within
that group. These two opinions, like the listing expectation
variables unique to unlisted companies, tend to show concern

with maintaining markets.

New York Company Group Analysis
Group centroids and midpoints used in the discriminant

analysis classification program are shown in Table 4-15.

100
TABLE 4-15

DISCRIMINANT SCORES: NEW YORK COMPANY GROUP

 

 

 

Centroidgni
Over-the-Counter Listed
Companies Companies Mid-Point
3.2791 4.6794 3.9793

 

Each company's score is computed and compared to the
mid-point criterion. The company is assigned to the cate-
gory having the centroid to which it is nearest. The dis-
criminant analysis assignments are compared to the company's
actual group membership to determine whether or not the
company is correctly classified.

The results of the discriminant analysis assignments

are shown in Table 4-16.

TABLE 4-16

DISCRIMINANT ANALYSIS CLASSIFICATION:
ORIGINAL RESPONDENTS

New York Company Group

 

 

 

 

Number
_of Assignments

Category TotaI’ Correct Percent Correct t valuea
Unlisted

Companies 25 25 100.0 50.00
Listed

Companies 40 37 92.5 5.38
Unlisted

and Listed 65 62 95.4 8.06

 

a. The t value is computed from the methodology shown in
Table 4-8.

101

The results indicate that executive responses to the
30 questions can be used to determine whether or not a
company is oriented toward listing on the New York Stock
Exchange.

To verify the results from applying the discriminant
analysis methodology a second classification approach was
applied. Minimum chi-square values are computed from the
individual company's deviations from each of the groups
(listed and unlisted) against which the company is compared.
The lower the chi-square value, the less the company deviates
from the "average" member of that group. The results of
the minimum chi—square classification program are shown in
Table 4-17. I

TABLE 4-17

MINIMUM CHI-SQUARE CLASSIFICATION:
ORIGINAL RESPONDENTS

New York Company Group

 

 

 

 

Number
_9f Assignments

Category TotaI’ Correct Percent Correct t valuea
Unlisted

Companies 25 25 100.0 50.00
Listed

Companies 40 37 92.5 5.38
Unlisted

and Listed 65 62 95.4 8.06

 

a. The t value is computed from the methodology shown in

102

As Table 4-17 portrays, identical results are received
when either the minimum chi-square method or the discrimin-
ant analysis method is applied to the questionnaire responses.

The above results were obtained by applying the two
classification methods to the same data base used in devel-
oping the discriminant functions. Since an upward bias is
possible when the discriminant function data base and group
to be assigned are identical, a small, separate group was
classified. This was done with 1971 listed companies which
came from the original data source of unlisted companies
which subsequently became listed. These seven companies were
not used in the development of either of the classification
methods.

No test of hypothesis was applied because the degrees of
freedom were so low; however, five out of seven companies
(71.4 percent) were correctly classified under each classifi-
cation program.

Except for the special 1971 listed group for which a t
test was not applied, the percent of companies correctly
assigned was significant at the one percent level. The re-
sults are significantly better than 50 percent or a random

assignment.

A Cluster Analysis of the Variables

Cluster analysis is applied to determine if there are
"natural" groupings of variables by which a market is judged
by corporate executives. The listing expectation variables

and their clusters are shown in Tables b-80 and b-81 for the

103
unlisted and listed New York companies, respectively. Five

of the clusters are very similar and are shown in Table 4-18.

TABLE 4-18

A COMPARISON OF FIVE "LISTING EXPECTATION" CLUSTERS:
UNLISTED AND LISTED NEW YORK COMPANIES

 

 

Included in Cluster of:

 

 

 

 

 

 

 

Cluster Cluster Name Unlisted Listed
Number (Expectation Variables) Companies Companies
1. Exchange Effects
Ownership base yes yes
Marketability yes no
Transactions yes yes
Stockholder interest yes yes
Effect on share price yes yes
2. Loss of OTC Market Sppport
Loss of sales support yes yes
Price volatility yes no
Loan value of stock no yes
3. Reporting Reqpirements
Stockholders yes yes
Public yes yes
Exchanges yes yes
4. Corporate Visibility,
Advertising value yes yes
Analysis of stock yes yes
Prestige no yes
Marketability no yes
5. Obtainment of Funds
Sale of additional stock yes no
Company's credit rating yes yes
Access to capital markets yes yes
Prestige yes no
Price publicity yes no

 

Twelve of the 18 variables included in the five clusters

are common to both unlisted and listed companies. If only

104
four clusters are viewed, ten of fourteen variables are common
to both groups.

In general, it appears that corporate executives of un-
listed and listed companies consider similar variables when
selecting a market for their company's stock. The discrim-
inating power of these variables (except for the reporting
requirements' variables) is due primarily to the differences
in their ratings.13 However, as the fifth cluster shows,
unlisted company executives tend to include in their
clusters more variables than listed companies. Therefore,

a portion of the discriminating power is partially due to
the consideration of different variables.

The professional opinion variables and their clusters
are shown in Tables b-84 and b—85 for the unlisted and listed
companies, respectively. A comparison of these two tables
is shown in Table 4-19. Except for one cluster containing
the opinion values of company officers, board of directors,
and stockholders, there is little similarity between the
clusters.

The discriminating power of these variables appears to

be due partially to the differences in ratings and partially

to the dissimilar groupings of the opinion variables evaluated.

 

13See Table 4-4.

105

TABLE 4-19

A COMPARISON OF THREE "OPINION VALUE" CLUSTERS:
UNLISTED AND LISTED NEW YORK COMPANIES

 

Included in Cluster of?

 

 

Cluster UnIisEed LIEEeH’
Number Opinion Value of Companies Companies
1. Company Officers yes yes

Board of Directors yes yes
Stockholders yes yes
2. Over-the-Counter Dealers yes yes
Investment Bankers yes no
Institutional Investors yes no
Your own opinion yes no
3. Legal Counsel yes no

 

A Factor Analysis of the Variables

The purpose of applying factor analysis is to learn
which of the variables, individually or in sets, accounts for
the variance in executive expectations and for the variance
in the valuing of professional opinions. The analysis of
the factors stresses description of the data rather than
statistical reference.

Seven factors, containing 15 variables, explain 79.6
percent of the variance of the listing expectation variables
of the unlisted New York Companies. Seven factors, containing
16 variables, explain 72.9 percent of the variance of the
listed New York companies.

Table 4-20 shows the variables which are common or
unique in the "listing expectation" factors of unlisted and

listed companies. (The factor analysis results are shown in

106
Tables b-82 and b-83, for the unlisted and listed New York
companies, respectively.)

To the extent that executives follow their beliefs and
expectations (and the discriminant analysis indicates that
they follow their expectations), factor analysis may give
a clue to the variables which are most important in the
listing decision.

The variables unique within the unlisted company re—
sponses concern, generally, the desire to "maintain markets"
as evidenced by the factors' contents: Marketability,
price volatility, loan value of stock, effect on share price,
and spread between bid and ask. The variables unique within
the listed company factors consist of two general types of
expectations: 1. "attention attracting", and 2. "financial
considerations.” The "attention attracting" variables are:
prestige, analysis of stock, price publicity, volume pub-
licity and merger (the attractiveness of your firm if
listed). The "financial considerations" set of variables
include: sales of additional stock and loan value of stock.

The variables which are common or unique in the
"opinion value" factors of unlisted and listed companies
are shown in Table 4-21. (The factor analysis results
for unlisted and listed companies are shown in Tables b-86

and b-87, respectively.)

107
TABLE 4-20
VARIABLES COMMON OR UNIQUE WITHIN THE "LISTING

EXPECTATION" FACTORS: UNLISTED AND LISTED
NEW YORK COMPANIES

 

 

 

Unique Within Factors of:

 

 

 

 

 

 

 

 

 

Factor Common to Unlisted Listed
Number Both Groups Companies Companies
1. Exchange Effects
Ownership Base Marketability
Transactions
2. Loss of OTC Market
Support
Loss of Sales Price Volatility Loan Value
Support of Stock
3. Reporting Require-
ments
Stockholders
Public
Exchanges
4. Corporate Visibility
Advertising Value Merger (attractive- Prestige
ness of your Analysis
firm) of Stock
5. Obtainment of Funds
Company's Credit
Rating
Access to Capital
Markets
6. (No Common Name) Loan Value of Price
Stock Publicity
Volume
Publicity
7. (No Common Name) Effect on Share Sales of
Price Spread Additional
Between Bid Stock
and Ask
Merger
(attrac-
tiveness
of your
firm to
other

firms)

 

108
TABLE 4-21
VARIABLES COMMON OR UNIQUE WITHIN THE "OPINION

VALUE" FACTORS: UNLISTED AND LISTED
NEW YORK COMPANIES

 

 

 

 

 

Variables
Unique Within the Factors of:
Factor Common to Unlisted Listed
Number Both Groups Companies Companies
1. Board of Directors
Stockholders
2. Institutional
Investors

Your own opinion

3. Legal Counsel Over-the-
Counter
Dealers

 

The first two factors are common to both unlisted and
listed companies. The third factor for each group accounts
for approximately 15 percent of the variance within their
respective groups; however, these factors and their single
variables are unique to each group. The unlisted company
variable is the opinion of legal counsel whereas the listed
company variable that accounts for 16 percent of the variance
is the opinion value of the over-the-counter dealers.

It appears that the discriminating power of the opinion
variables is due to both the differences in ratings of sim-
ilar opinions and to the consideration of different opinions

by unlisted and listed companies.

CHAPTER V

CONCLUSIONS AND IMPLICATIONS

FOR FUTURE RESEARCH

Introduction

 

As indicated in Chapter I the purposes of investigating
the listing decision are:

1. to ascertain the crucial variables that are
analyzed and evaluated.

2. to learn which variables are given the greatest
emphasis in the choice of markets.

3. to determine those individuals or groups which
tend to have the strongest influence on the
listing decision.

4. to develop a discriminant function that classi-
fies firms as either 1isters or nonlisters.

The first section of the chapter contains the conclu-
sions and consists of five parts. The first four parts
parallel the above cited reasons for studying the listing
decision. The fifth part relates executive expectations to
prior research and other financial literature. The second
section covers the limitations and applications of the study,
concluding with the implications for further research.

The three techniques of cluster analysis, factor analysis,
and discriminant analysis were employed to obtain maximum infer-

ences from the data. The sequencing of these techniques

109

110
points out the variables considered, the importance of the
variables in the listing decision process, and finally how
the variables may be used to assign companies as nonlisters

or listers according to managerial expectations.

Conclusions

 

The perspective taken is to present conclusions which
are specific, yet generalizable to all companies or generali-
zable to all unlisted or listed companies having characteris—
tics which, at the very least, are equal to the minimal
numerical requirements of the American Stock Exchange.

Rather than present conclusions which are applicable
solely within one of the four company groups (unlisted

American, listed American, unlisted New York, listed New York),

 

1Cluster analysis separates the executive responses into
groups such that each response is more like other responses in
its group than like responses outside the group. One of the
major problems in marketing and in finance consists of the
orderly classification of myriad data. The cluster analysis
technique, by an orderly classification of executive responses,
organizes the crucial variables that are analyzed and evaluated.
To learn which of the variables are given the greatest emphasis
in the choice of markets, a second technique, that of factor
analysis,was used. In this technique interest is centered on
the responses in the sense that the questionnaire responses
are summarized in terms of a smaller set of linear combina-
tions that preserve most of the information in the original
set of responses. The variables given the greatest emphasis
in the choice of markets are those questionnaire responses which
are contained in the smaller set of linear combinations of
responses. The third technique, multiple discriminant analysis,
establishes a procedure for assigning individuals to one or
more mutually exclusive groups. This technique indirectly
supports the factor analysis technique by determining which
variables account most for intergroup differences in average
profile. The higher the proportion of correctly classified
companies from the multiple discriminant function, the more
certain is it that the relevant listing decision variables have
been found.

111
additional criteria have been employed when the inferences
from the cluster analysis (part one) and factor analysis

(part two) are presented.2

The Variables Analyzed and Evaluated
The values assigned to the listing expectation variables
differ between unlisted and listed companies of both the
American and New York Company groups; however, certain var—
iables tend to converge within clusters having similar
characteristics. The listing expectation variables, consid-

ered and evaluated by all groups, are shown in Table 5—1.

 

2First, a listing expectation variable or an opinion
value is concluded to be an important component in the list-
ing decision process if it is found within each of the four
groups. Second, a variable or an opinion will be included
among the conclusions if it is found within the cluster
analysis or factor analysis of both unlisted groups (American
and New York) and is not found in either of the listed groups,
or if a variable or an opinion is found within both listed
groups and is not found in either of the unlisted groups.
Therefore, the conclusions will be applicable either to all
groups or only to unlisted or listed companies, whether of the
American or New York group.

112
TABLE 5-1

LISTING EXPECTATION VARIABLES: CONSIDERED
AND EVALUATED BY ALL COMPANY GROUPS

 

 

Composite Cluster
(items)

 

Exchange Effects

 

Ownership base
Marketability
Transactions

Loss of OTC Market Support

 

Loss of Sales Support

Reporting Requirements

 

Stockholders
Public
Exchanges

Obtainment of Funds

 

Company's Credit Rating
Access to Capital Markets

 

Source: Constructed from Tables b-72, b-73,
b-80, and b-81.
Although additional variables are evaluated within each
company group, the items shown in Table 5-1 are concluded to
be the variables, in general, which executives tend to con-

sider and evaluate in the listing decision process.

The Variables Given the Greatest Emphasis
Certain listing expectation variables of unlisted and

listed companies in both the American and New York company

113
groups are represented among the various factors which, on
the average, account for approximately 70 percent of the
variance within each company group. The listing expectation
variables which help to account for the variance explained

within each company group are shown in Tables 5-2 and 5-3.

TABLE 5-2

LISTING EXPECTATION VARIABLES: PARTIALLY
ACCOUNTING FOR THE VARIANCE WITHIN
FACTORS OF ALL COMPANY GROUPS

 

 

Variables

 

Transactions
Loss of Sales Support
Reporting Requirements to:
Stockholders
Public
Exchanges
Company's Credit Rating

Access to Capital Markets

 

Source: Constructed from Tables b-74, b-75,
b—82 and b-83.

The seven variables shown in Table 5-2 are concluded to
be among the more important listing decision variables for two
reasons. First, they are among the variables which account
for the explained variance of the factor analysis, and second,
these variables are found in the listing expectation factors
derived from the expectations of executives in each of the

categories, i.e., unlisted and listed, American and New York

114
companies. However, these are not the only important var-
iables. Table 5-3 contains three additional variables which

appear to be of prominence within certain categories.

TABLE 5-3

LISTING EXPECTATION VARIABLES: PARTIALLY
ACCOUNTING FOR THE VARIANCE WITHIN
FACTORS OF SOME COMPANY GROUPS

 

 

American Companies New York Companies

 

 

 

Variables Unlisted LiSted UnIiStéd' Listed
Marketability yes no yes no

Sales of Additional
Stock no yes no yes

Merger (attractive-
ness of your firm
to other firms) no yes no yes

 

Source: Constructed from Tables b-74, b-75, b-82, and b-83.

The "marketability" variable is among those variables
contained solely in the factors of unlisted companies whereas
the variables covering "sales of additional stock" and "merger
(attractiveness of your firm to other firms)" are among those
variables contained solely in the factors of listed companies.
These three variables are concluded to be important listing

decision variables within their relevant company groups.3

 

3The reasons these variables are concluded to be important
are: 1) they are among the variables which account for the
explained variance, and 2) these variables are found in the
listing expectation factors of executives in a relevant category,
that is, found only among unlisted or listed companies.

115
Another way of presenting the variables that tend to
explain best the listing decision is to consolidate Tables
5-2 and 5-3 and restructure the results according to type
of market, that is unlisted or listed. The restructured

results are shown in Table 5-4.

TABLE 5-4

LISTING EXPECTATION VARIABLES ACCOUNTING
FOR THE CHOICE OF MARKETS FOR A
COMPANY'S COMMON STOCK

 

 

 

Variables
Unlisted Company Listed Companies

Transactions Transactions
Loss of Sales Support Loss of Sales Support
Reporting Requirements to: Reporting Requirements to:

Stockholders Stockholders

Public Public

Exchanges Exchanges
Company's Credit Rating Company’s Credit Rating
Access to Capital Markets Access to Capital Markets
Marketability Sales of Additional Stock

Merger (attractiveness of
your firm to other firms)

 

Source: Constructed from Tables 5-2 and 5-3.

The Individuals and Groups Influencing
the Listing Decision
The opinions which accounted for the variance within the

factors of each of the four groups are shown in Appendix b.4

 

4See Tables b-78, b-79, b-86 and b-87.

116
Those opinions which help to account for the variance
explained and are common to all four groups, i.e., unlisted

and listed, American and New York, are shown in Table 5-5.

TABLE 5-5

OPINIONS PARTIALLY ACCOUNTING FOR
THE VARIANCE WITHIN FACTORS
OF ALL COMPANY GROUPS

 

 

Opinions of:

 

Board of Directors
Your Own Opinion
Institutional Investors

 

Source: Constructed from Tables b-78, b-79,
b-86 and b-87.

These three sources of opinions, while common to all
groups may be supplemented by the opinion values of "legal
counsel" which are found solely within the factors of
unlisted companies of both the American and New York stock
exchanges.

If the foregoing opinions are consolidated according
to type of market, that is, unlisted or listed, then the

results can be summarized as shown in Table 5-6.

117
TABLE 5-6
OPINION VALUES WITHIN THE FACTORS

OF UNLISTED AND LISTED
COMPANY EXECUTIVES

 

 

Opinions of:

 

Unlisted Groups Listed Groups
Board of Directors Board of Directors
Your Own Opinion Your Own Opinion
Institutional Investors Institutional Investors

Legal Counsel

 

Source: Constructed from Tables b-78, b-79, b-86 and b-87.

Although these opinions help to explain the variance
within their respective group factors, it appears that the
value assigned to institutional investors is very low.5

It would seem that, in general, for all companies, the
two most important decision-making sources of influence are
the Board of Directors and "your own opinion", that is, the
opinion of the company president. However, since these are
internal sources, it may be that institutional investors for

all groups, and legal counsel for unlisted groups, in general,

 

5Out of eight possible positions the opinion value
assigned to institutional investors by executives of unlisted
and listed American companies ranked 7 and according to the
weights assigned by unlisted and listed New York companies,
the value of institutional investors ranked 8 and 6, respec-
tively. A low value assigned to an opinion indicates that,
looked at individually, certain opinions are not heavily
weighted; however, when taken in context with other opinion
variables, it may be used to explain how the listing decision
is made. Additional studies are required and will be dis-
cussed under the section covering implications for future
research.

118
tend to exercise the greatest external influence on the list-
ing decision process.6
The Classification of Firms as
Listers or Non-Listers

The hypothesis as stated in Chapter I is:

Unlisted and listed companies can be identi-

fied and classified based on how executives

value the opinions of professional finance

and business personnel and on how executives

perceive the efficacy of the exchange trading

market.

A test of proportions was applied to determine if the

percent of correctly assigned differed significantly from
50 percent or a random assignment. A summary of the tests

of classification results from Chapter IV is presented in

Table 5-7.

 

6A "strong influence in the listing decision process"
is construed to mean those opinions which tend to account
for the most explained variance in a factor analysis of the
opinions studied.

119
TABLE 5-7

MINIMUM CHI-SQUARE CLASSIFICATION RESULTS

 

 

 

Percent t Level of

Group Total Correct Correct Value Significance
Unlisted American 73 64 87.7 6.44 .001
Listed American 77 67 87.0 6.50 .001
Unlisted New York 25 25 100.0 50.00 .001
Listed New York 40 37 92.5 5.38 .001
1971-72 Listed

American 36 28 77.8 3.33 .010
1971 Listed New

York 7 5 71.4 a a

 

a. No test of hypothesis applied because of the small number of
degrees of freedom.
In the four original groups, unlisted and listed, American
and New York, the level of significance is .001. In the
"Special" American Exchange 1971-72 listed group, the results

were significant at the one percent level:7

The "Special"
1971 listed New York group had insufficient degrees of freedom
for a meaningful test of hypothesis to be constructed.

The four original groups differ significantly from a 50

percent or random assignment. The Special 1971-72 listed

company sample verifies the original American group results.

 

The Special 1971-72 Listed American Group was a separate
study classified by the data developed from the original un-
listed and listed American groups.

120

With these findings the hypothesis that unlisted and
listed companies can be identified and classified based on
how executives value the opinion of professional finance and
business personnel and on how executives perceive the
efficacy of the exchange trading market is accepted.

Financial Literature and Executive
Listing Expectations

The conclusions confirm, on a national basis, the find-
ings of James E. Walter's study of 19 regional companies that
loss of dealer support is an important listing decision
variable.

The writings of five authors, who succinctly summarize
the available literature, have been consolidated into two
schedules: the advantages and disadvantages of listing.8

Executives, on the average, hold positive expectations
regarding most of the advantages of listing.9 Five of the
stated advantages are concluded to be important components in

the listing decision process.10

 

8Supra, pp. 9, 10.

9One of the stated advantages "makes possible margin trad-
ing" was not included in the questionnaire because the majority
of unlisted companies included in this study became eligible
for margin trading on July 8, 1969, when the Federal Reserve
published its initial OTC Margin Stock List.

10The five variables, shown in Table 5-4 are: marketability;
company's credit rating; access to capital markets; sales of
additional stock; and merger (attractiveness of your firm if
listed). A sixth variable, transactions, could possibly be
subsumed as one of the expected advantages of listing.

121

Of the disadvantages of listing, executives, on the
average, hold negative expectations on the "loss of broker
support," are basically neutral regarding the "onerousness
of reporting requirements," are not interested in a
"voluntary delisting option," and finally, tend not to con-
sider the "additional expense burden" as an important portion
of the listing decision.ll

Meaningful responses were not obtained in the survey
regarding the stated disadvantages covering the "loss of
management control" and the possible "over-emphasis of the
short-run."

It is true that listing on an exchange increases report-
ing requirements, adds to the expense burden and is normally
irrevocable by the company on a voluntary basis. However,

this study indicates that executives in general no longer

tend to include these variables as disadvantages of listing.

Implications of Future Research

 

Applications of Research Findings
The financial literature can be updated by removing those
stated disadvantages of listing, which, although true, do not

appear to be relevant decision-making variables.

 

11The two variables: "loss of broker support" and "report—
ing requirements" are shown in Table 5-4 and are part of the
conclusions reached in the second part of this section. The
data for the statement pertaining to a "voluntary delisting
option" are presented in Tables b-43 and b-44 for the American
and New York groups, respectively. The data for the statements
pertaining to the imposition of an "additional expense burden"
are presented in Tables b-65 and b-66, for the American and
New York groups, respectively.

122

The listing expectation variables accounting for the
choice of markets for a company's common stock can be util—
ized by executives of smaller, growing companies two ways:
first, to have a basis of comparison with more experienced
companies having similar characteristics, and second, to
reduce the search time for the more important variables
included in the listing decision process.

Finally, the listing expectation variables and the Opinion
values can be utilized by the Market Development Section of
the American and New York Stock Exchanges to determine which
of the eligible unlisted companies are the best listing

12
prospects.

Limitations of the Research
The survey approach itself contains certain limitations
that may affect conclusions reached. Two primary problems
are non-responses and the interpretation of the questions by

survey recipients. These limitations should be considered

 

12The higher the multiple discriminant analysis score,
the more favorable are the expectations regarding the exchange
market. The exchanges' personnel can more efficiently utilize
their time by contacting those company executives who are most
favorably disposed to listing (as indicated by their high
discriminant score).

123
'when interpreting the research results.13
The conclusions are limited to companies having attained
financial characteristics and size at least equal to the mini-
mum requirements Of the American exchange. And the conclusions
are limited also to the types of industries included in this
study. Finally, even though the variables and opinions pre-
sented in the conclusions are applicable either to all company
groups studied or to unlisted and listed company groups, the
classification and assignment of a specific company must be
accomplished by utilizing data developed within the exchange
group for which the company meets the minimum numerical list-

ing requirements.

Future Research
Companies smaller than those included in this research
could be studied to determine if regional exchanges may util-
ize similar approaches to contact companies for original
listing. Regulated companies and financial institutions
could be studied to determine whether or not the same results
are found in these industries. The results from these indus-

tries and the findings from the smaller companies could be

 

13 . . .
Checks on the questions dealing Wlth expenses, pro—

fessional Opinion values, and contacts with exchanges indicated
that there was internal consistency and interpretation. Non-
responses could not be avoided; however, as stated in Chapter
III, it was not until six weeks after the original mailing

that the second request was sent. The replies to the second
and third mailings were used as proxy variables for non-
responses from the original mailing. There were no signifi-
cant differences between the first set of responses and the
next two sets of responses. No further action was taken regard-
ing those who did not respond to the second and third request
letters.

124
used to extend the conclusions to more groups. The Market
Development section of the exchanges may be able to use this
new information to market the exchanges prior to the time
that companies meet their eligibility requirements.

Further research on executive expectations would contri-
bute to the recently completed research. The new studies
could attempt to answer the following types of questions.
First, what causes executive expectations to change over time?
This could be done by recontacting the executives of unlisted
companies who responded to this study, since changes in their
expectations are probably necessary in order for them to be
willing to list their stock. Second, are executive expecta-
tions met? Two studies would have to be undertaken to
answer this question. One study would be to survey the listed
company executives who responded and the second study would
investigate the actual changes which took place in certain
variables, namely, transactions (volume) and ownership base.
And third, do executives use listing (or the stated intention
to list) as a vehicle to facilitate distribution of sales of
stock? This question could be answered by contacting the
executives and by a library research of stock sales which
took place within a period of plus or minus twelve months from
the date of listing.

The answers to these questions may shed some light on
whether or not there are certain self—fulfilling executive

expectations!

APPENDICES

APPENDIX A
QUESTIONNAIRES SENT TO UNLISTED

AND LISTED COMPANY EXECUTIVES

125

UNLISTED COMPANY QUESTIONNAIRE
1. rum cncu. cue: (to. or FILL-II m m.

Your title (poeition in coopeny):

 

 

 

Age: 26-35 __ Bducetionel level: high echool __
36-65 _ none college
56-55 _ lechelor'e degree __
56-65 __ eo- edvenced work _
65 end over __ Heeter'e degree _
“OD- —
Other __
leve you taken en invent-eat. couree or e-iner on the etoch Ierhet eince 1964? Yee _ lo _
Doee your conpeny heve:
An inventor reletione Prov-7 Yen __ No __
An Individual leeponeible for lnveetor leletione? Yee _ ho _
A etock option plea for executivee‘! You No __
An -loyoe (other then executivee) etoch purcheee plea? Yee Io _
Rho (whet poeition - president. vice-preeident, etc.) euthoriree the finel releeee
of inventor intonetion! Poeition
If my of the follovin. types of finenciel epecieliete ere on your Ioerd of Directors. pleeee indicete how my.
Met
Stock Iroter/Deeler
[tweet-eat lenher
Co-erciel Banker
Ineurencc Executive
Pimnciel Anelyet/Uriter
Other (Specify)
Approxinetely how my Iroker/Deelere Ieke e nerket in your stock? Inter
Approxinetely how Ieny inetitutione hold stock in your coqenyl “or
be frequently doee your comny do the following: lever mortal! Seni-Annuelly Anmnlly Other 3 cl!

 

Send helence eheet intonation to com etochholdere _ _

Send incone etete-ent infomtion to «non etockholdere __ __

Send belence eheet intonation to the financial preee or
wire eervicee

Send incooe etete-ent intor-tioe to the finenciel preee
or wire eervicee

Solicit proxiee fron co-on etockholdere

Send other typee of infornetion to coweny etockholderl

Hhet ie the approximate umber of contecte per tooth on coupeny Neineee
between youreelf end finenciel enelyete or hrohere (end by who. initieted)?

Initiated by

 

m of Contect Youreelt Anelyete or Broken
Pereonel __ __
Telephone __ __
Written _ __

Does your coepeny plen on eellin; edditionel co-on etoch within the next three yeere?

Yee lo In Co-ent Undecided _

126

Unlisted (cont'd.)

II. PLIASI B‘I'DIATI HIIA‘I‘ YOU slum I'll m W I! M m FACTORS LISTED em I! YOUR srocr um IO 3! LISTED. PLEASE RATE THE FACTORS

POI EACH “CHAN! smvs M -3 THROUGH +3; vans -3 nuns WY WAVOIAILI. ~2 IODZRATIIJ WAVOMBLE. -I SLIGHTLY UNFAVOIABLI. 0
MS no EFFECT m LISTED. +1 SLIGHTLY PAVW. +2 :mmrtu FAVORAIIJ. AD +3 mm: PAVOIABLZ.

 
   
  
 
 
  

If It Here To Be Listed On:

 

 

'00! Stock Exchan s

New York Stock hche e

   

     

 

Mara-2.1.- mtgl M M Uni-wr-blo 1922...}. M
ham -3 -2 -l o‘un +3 0 an +3 -3 -2 -1 0 +1 +2 +3
Ownership lose: “or of _ _ _ __ __ _ _. ._ _ ._ —— — I—— — — _ _— _
shareholders)

Marketability of Stock (Saleahility)

bug-ant Control

I
|
I
I
I
l
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

Loss of Sales Support by Over-the-
Counter Market-Hating Dealers

Sales of Additional Stock
Transactions (Volt-s of Sales)

Ooqany'a Credit dating

I
I
I
I
I
I
I
I
I
I
|
I
I
I
I 11_1 I I
I
I
I
|
I
I

Access to lbw and Capital brhets

Price Volatility of Stock
(fluctuations)

I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
|
I
|
I
I

Offers an ”Advertising Value"

Analysis of Stock and Coqeny by
potential investors

Prestige for your My
hhasis on Short-Inn Operations

Require-ants for leporting to:
Stockholders
Public
Exchanges

I II

llerger (Your cow‘y's ability to
acquire other fir.)

Merger (The attractivcese of your
fire. if listed. to other fires)

Loan Value of Stock for Shareholders
llevepeper Publicity on Prices
Newspaper Publicity on Volt-
Current Stockholder Interest

Affect on Price per Share

Spread letveen ”lid” and ”Ash”

 

 

 

III. m ”UNIX; sum nun TO EXPENSES ASSOCIATED VIII LISI'm. M EACH 0? m trainers snow. PM “DICK?! WI 1'“! VOLUN-
m STATDIINI‘S WOULD I! CONSIDERED A SIGNIFICANT VAllAIIJ I)! m nocrss OF DECIDING “(tn-[El m LIST OI [WIN FROM LISTING. (PLEASE
CIRCLE II‘I'IIII YES OI D.) :0 ASSIST I“! III RESPODIN ‘I'O CIIIAII ”TIM. m TAIL! snow CONTAINS m WES AID I'll! rats 111A?
rmwommtrmmmonsmwmmuusm.

 

 

 

Pee Type E York Aperican Midwest Pacific Coast
initial Listing fee 35,990 12,290 24529 2.500
Annual Maintenance Fee LEO: M 250 250
szrus £52532 Eases £51fls£e2£

Other things being equal. the fees sholn shove preclude your listiu your stoci. Yes lo Yes No Yes No Yes No
The shove fees are considered an inortant portion of the total listin
decision-eating process. Yes In Yes In Yes In Yea Io
The require-ants of naintaining Transfer Agent and Registrar offices in a
location other than (or in addition to) your coqany'e officee. Yee Io Yes Io Yr: Io Yes No
Expenses associated with the eachauea reporting require-sets to thensalvee
and to stockholders. Yes In Yes Io Yes Io Yes la
The total expenses associated with listing preclude your listing your stock. Yes llo Yes lo Yes lo Yes No

 

IF you were to be listed on the New York or the hericsn. would the fees shove
in the table shove deter you fron having your stock also listed on a
Regional exchange (known as a "dual" listing). Yes No Yes No Yes lo Yes no

IV.

'0

127

Unlisted (cont'd.)
PLIASI IDICATI m IELIEPS ADD OPIIICS I’Y ORIGIN: OR PILLIm-Ill m AISUEES 1'0 THE POLLINIE WESTIORS.

Does your coqaay east the listing requirusnts of:
Do Not Know

I"
0
I

 

lee York Stock hchsue

Anericen Stock Exchange

Midwest Stock Exchange

Pacific Coast Stock Exchesue

Other legional Exchanges
(Please specify)

IIIII
IIIII"
IIII

 

Ins your coqany discussed (internally) the possibility of listin its stock on an exchange within the past three years?

 

 

 

 

Yes In In Co-ent _
Please indicate the weight that you believe should he assigned ‘Weight
to the opinion of the following groups or individuals i_f_ you were
to discuss with then the possibility of listing your conpany's Coqany Officers _
stock. (Please indicate weight free 0 to 10 with 10 indicating board of Directors __
the greatest weight.) Over-the-Oounter Market flaking Dealer(s) __
Stock Exchange Representative“) __
Invest-ant lanker(s) _
Stockholders ._
Legal Counsel __
Institutional Investors _
Your own opinion _
Others (Please specify) __
If it were possible to voluntarily delist your co-on stock after a year's
trial run on an exchange. would this significantly affect your listing decision? Yea _ lo _
lave you discussed (within the past three years) with my of the over-the-
counter dealers who "nske s nsrket” in you stock the possibility of
listing your conpsny's stock on a stock exchange? Yes In _ b Co-ent _
If yes to the above. the over-the-counter dealer's attitude toward the
listin of your stock was: Substantially neutral Substantially
.4m22L_. ____. ._222u;_
-3 -2 -l 0 +1 +2 +3
What were the essential reasons supporting their attitude?
Ilse your conpeny co-uniceted with any exchange representatives since 1968
regarding the possibility of listing your stock? Yes __ lo _
if yes. what type of contact and who initiated the contact: initiated a
322 of Contact Your Cogany a York hericen Midwest Other
Personal _ __ ____
Yeleptnng __ _ __ __ _
Britten _ __ __ _ _
Does your coqany plan on eventually listim its stock on an exchange? Yes In _ Undecided __ Io Con-ant _
If yes. on which exchange“)? New York _ Pacific Coast __
Anericen _ Other Regional Exchanges
Midwest __ (Please specify) _
If your conpeny were to be listed on either the Anericm Us New York
Stock Exchange. would you consider also a "duel listing." that is.
listing on a Regional Exchange? Yes _ lo _
If yes. on which legionsl Exchange“)? Ioston _ Phile-Ealt-Uash _
Cincinnati Pittsburgh __
Detroit Salt Lake __
Hidwest __ Spokane _
Pacific Coast __
Ilse your conpany requested listing on an exchange within the past
three years? Yes Io _ Io Co-ent _
if yes. for which exchange(s)? New York Pacific Coast __
Anericsn _ Other Regional Exchanges
Midwest _ (Please specify) _
Do you wish to be quoted or rennin anonynous? Antony-sue Quoted —

OPEN-DID QUESTIONS THAT MAY SUGGEST T0 YW CERTAIN OPINIOIS. OISMATIM All HP!!!” atom RICH YOU MAY VISII TO EIAEOIATE. PLEASE
PEEL me To USE m m FOURTH PACE POE YWI (Winn, IP YOU UISII) ensues.

Why has your cmany refrained fro listing its co-n stock on an exchange? (Por exaqle. are you waiting until your
conpeny is well above the exchange's uni- listing requir-nte? Are there internal factors that nuet be evaluated?)

low should a conpany nsrket or have nerketed its cause stock? (Uhst types of approaches and services would you
recs-end to develop knowledge of and acceptance of your coqany's stock in the nsrketplece?)

128

LISTED COMPANY QUESTIONNAIRE
1. PLEASE czscxa. cum (V). or PILL-II m Answer.

Your title (position in conpany):

 

Age: 26-35 Educational level: high school
36-65 soea college

 

 

 

66-55 Bachelor's degree
56-65 sons advanced work
65 and over Master's degree __
Ph.D.
Other
have you taken an invest-ante course or seeinar on the stock earket since 1966? Yes __ No __
Does your coepsny have:
An investor relations Progrse? Yes __ No __
An Individual Responsible for Investor Relations? Yes __ No __
A stock option plan for executives? Yes __ No __
An eeployee (other than executives) stock purchase plan? Yes No __
Rho (what position - president. vice-president. etc.) authorises the final release
of investor infer-ation? Position
if any of the following types of financial specialists are on your board of Directors. please indicate how eany.
Dunbar
Stock Broker/Dealer
lnvesteent Banker
Connercial Banker
Insurance Executive
Pinancial Analyst/writer
Other (Specify)
Approaiaately how any institutions held stock in your coupsny before your stock bees-e listed? lhnber
Approxieately how esny institutions now hold stock in your coepany? Mar
lbw frequently does your coepsny do the following: Never utterly Seal-Mnuallz Annually Other 5 cif

Send balance sheet infornation to com stockholders

Send incoes statnent inforaetion to co-on stockholders

Sand balance sheet inforeetion to the financial press or
wire services

Send incoee statuent inforeation to the financial press
or wire services

Solicit proxies froe co-on stockholders

Send other types of intonation to coapany stockholders

Uhat is the approrieate nueber of contacts per south on coepany business
between yourself and financial analysts or brokers (and by whoe initiated)?

Initiated Ly

 

an of Contact Yourself Analysts or Brokers
Personal __ __
Telephone __ __
Britten _

Does your coepany plan on selling additional co-on stock within the next three years?

Yes lo llo Co-ent Undecided

Listed (cont'd.)

129

ll. PLEASE ITIHATI HEAT YOU IILIIVQ m m III“ II a! m FACTORS cusp am.

WLISTMOPYOWWSTOCK. PLIASIIAI'ITIIPWMIACI

[13! m PIISPICTIVI m MIATZLY PRIOR TO THE
ms 8” M -3 m +3: m -3 EARS WWII

UNPAVOIAIIJ. -2 mossarru NAME. -1 SLIGHTLY MAW. 0 MS I) EFFECT um LISTED. +1 SLIM? PAW“. +2 lDDKIATZLY

PAW. AID +3 man-u PAW“.

Pac tors

Ownership base: (ll-her of
shareholders)

Marketability of Stock (Saleability)
“snags-ant Control

Loss of Sales Support by Over-the-
Counter lurker-inking Dealers

Sales of Additional Stock
Transactions (Volt. of Sales)
Coweny's Credit Rating

Access to lbney and Capital lhrkats

Price Volatility of Stock
(fluctuations)

Offers an "Advertising Value"

Analysis of Stock and Coqany by
potutial investors

Prestige for your Cupany
”basis on Short-tun Operations
Require-ante for Reporting to:
Stockholders
Public
Eachanges

liergar (Your conpany's ability to
acquire other fires)

larger (The attractiveness of your
fire. if listed, to other fires)

Loan Value of Stock for Shareholders
Newspaper Publicity on Prices
laspaper Publicity on Volu-
Currut Stockholder Interest

.Affect on Price per Share

Spread lemon "lid" and "Ask”

Y
Unfavorable

-3

-2

-l

c
leutgg
0

".3...“

+1 +2 +3

 

 
  
    
 

   

+1 +2 +3

 

t tock techs a

  

".229. M225
0

+1 +2 +3

 

III. THE POLLCHIK 81AM WT! 1'0 W rrrnnss “MIA?” um len.

warms 10 LIST 0! “MIN ".08 LlSTlm.

law Yo
35.000 13.& 2

Aeerica

rat recs 0? m M 8m. PLEASE IDICATI mm
THE POLWINC STATWTS mu: HAVE BID! MID“ (AT I'll! mu 0' Y” 1.1871") A slcnncasr 'AIIAlLE II m MESS 0P DICIDIN
(PM! tracts 8111!!! “SS as N.) 10 ASSIST YW II “smut in arms m1”. Til! TAM
alumnusmmmmnrsmtrmmmxrmmuxossmsunrronusm.

 

t Pacific Coast
2

 

Fe 1'
Initial Listing Pea
l liaint

 

Other things being equal. the fees shun above preclude your listing your stock.

The above fees are considered an inortant portion of the total listing

decision-mung process.

The require-ants of aaintaining Transfer Agent and lagistrar offices in a

location other than (or in addition to) your coqany's offices.

Expenses associated with the exchanges reporting requir-snta to th-aelvas

and to stockholders.

The total expenses associated with listing preclude your listing your stock.

lP you were to be listed on the law York or the herican. would the fees shown

in the table above deter you free havim your stock also listed on a

Regional exchange (known as a "dual" listing).

Yes

Yes

Yes

Yes

Yes

250
Aggie»
Yes he
Yes lo
Yas lo
Yes llo
Yes lo
Yes lo

Hidwest
Yes In

Yea lio

Yes llo

Yes lo

Yes

Pac if it Coas t
No

Yes No
Yes In
Yes Io
Yt‘I .0
Yes If“

IV.

130

Listed (cont'd.)

PLEASE INDICATE TOUR BELIEFS AID OPINIONS IT CIECXIIC OI FILLING II THE ANSUEIS TO THE POLLOHINH QUESTIONS.

Public records indicate that your con-on stock was listed on the following exchange(s) on the dates written below. If these

 

 

 

 

 

 

dates are correct. please check here. If these dates are incorrect or are not shown. please insert the correct date.
Date Listed Date Listed Prior to:
low York Cincinnati OVER—THEvCOUMTER
Anerican Detroit
National Phil-Balt-Hash
Midwest Pittsburgh
Pacific Coast Salt Lake
Boston ___ Spokane
Other

Please indicate the weight that you believe was assigned to the opinion of the following groups or individuals if y0u discussed
with then the possibility of listing your conpany'a stock. (Please indicate weight iron 0 to 10 with 10 indicating the greatest
weight.) ,

ei h

E

Coepany Officers

board of Directors

Ower-the-Counter Market-Making Dealer(s)
Stock Exchange Iapresentatitive(a)
Invastsent bankers

Stockholders

Legal Counsel

Institutional Investors

Your own opinion

Others (Please specify)

 

llllllll

 

At the time of listing if it were known that it were possible to voluntarily delist your cannon stock after a year's trial
run on an exrhange would this have been considered a significant factor in your listing decision?

Yes In

Prior to listing did you discuss with any of the Over~the-Counter Dealers who “nade a earket” in your stock the possibility
of listing your coepany'a stock on an exchange?

Yes lo

If yes. the over-the-countar dealer's attitude toward the listing of your stock was:

Substantially Substantially
Against heutral Favorable
-3 —2 -l 0 #1 *2 +3

"her were the essential reasons supporting their attitude?

 

 

Prior to your recent listing there were contacts between your cvmrany and at least one exchange: if there were contacts with
other exchanges, please indicate thee also. Please apecifv the type of contact and whether it wee exchange or coepany
initiated.

Initiated by
Type of Centers Your Coepany Mew York Aeerican Midwest Other (none)
Personal
Telephone
written

 

 

 

 

 

I
Hi

Does your coepsny plan on eventually listing its stock on the:
Yes Mo Mo Couent Mot Applicable
New York Stock Exchange
Anarican Stock Exchange

——

 

 

If your cospany is or were to be listed on the Aaerican. the New York. or the National Stock Exchange. would you consider also
a "dual listing", that is. listing on a Regional Exchange?

Yes No
If yes. on which Regional Exchangefa)? Ioston Phil-Ialt-Uaah
Cincinnati ___"_ Pittsburgh
Detroit Salt Lake
Midwest Spokane
Pacific Coast Other

 

 

Por which axchangs(s) did your cowpany request listing within three years before becoeing listed?

law York Pacific Coast

Aeerican Other Regional Exchanges
National (Please specify)
Midwest

Do you wish to be quoted or resale anonyeoua?
Anonywoua ________ Quoted

OPEN-END QUESTIONS THAT MAY SUGGEST TO YOU CERTAIN OPINIONS. OBSERVATIONS AND EXPERIENCES ABOUT "RICH YOU MAY HISH T0
ELABORATE. PLEASE FEEL FREE TO USE THE ILANK POURTH PAGE FOR YOUR (HANDHRITTEN. IF HISH) AMSHER.

why did your coapany follow the path it has free the ties of going public to its present listed status. (For exsnplc, why
did your coepany proceed directly froe the Over-the-Counter narket to the New York? Or. why did your cowpsny list nn the
Anerican and then proceed to list on the New York? Or. why did your company list its stock?)

how should a company narket or have narketsd its con-on stock? (Hhat types of approaches and services would vou recommend
to develop knowledge of and acceptance of your conpany'a stock in the sarketplace?)

APPENDIX B

131

Table B-1

SURVEY COUNTS: AMERICAN COMPANY GROUP

 

 

 

 

 

 

Eligible
Over—the-Counter 1969 and 1970
Companies Listed Companies
Category Number Percent Number Percent
Questionnaires sent 222 100 214 100
Total returns received 120_ 54 103 48
Refusals l9 9 ll 5
Questionnaires answered 101 45 92 43
Answered open-end part
only 6 3 l O
Utilized in statistical
analysis 95 43 91 43
Table B-2

SURVEY COUNTS: NEW YORK COMPANY GROUP

 

 

Eligible

Over-the-Counter

 

1969 and 1970

 

 

Companies Listed Companies
Category Number Percent Number Percent
Questionnaires sent 56 100 106 100
Total returns received 31 55 57 54
Refusals 2 4 9 8
Questionnaires answered 29 52 48 45
Answered open-end part
only 3 5 l l
Utilized in statistical
analysis 26 46 47 44

 

132

Table B-3

GEOGRAPHIC DISTRIBUTION OF RESPONDENTS:

AMERICAN COMPANY GROUP

 

State

Eligible
Over-the-Counter
Companies

1969 and 1970
Listed Companies

 

Number

Number

 

Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii

Idaho
Illinois
Indiana

Iowa

Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada

New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee

l—‘OOONl—‘ONONOOHOONHU‘IOHh-fil—‘OP—‘HHHLAQNHHHONOWOOI—‘O

NOOOU'IONI-‘l-‘l-‘AOOJP-‘ONOD-‘0l-‘l-‘UIOOOOl-‘l-‘NAOON-bl-‘NNKOONOO

133

Table B-3 (cont'd.)

 

 

 

 

 

7131 igible
Over-the-Counter 1969 and 1970

Companies Listed Companies
State Number Number
Texas 10 7
Utah 2 0
Vermont 0 0
Virginia 2 0
Washington 0 1
West Virginia 0 1
Wisconsin 3 1
Wyoming 0 0
Washington, D.C. 0 0
Foreign _2 _l

95 91

 

134
Table B-4

GEOGRAPHIC DISTRIBUTION OF RESPONDENTS:
NEW YORK COMPANY GROUP

 

W
Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
State Number Number

 

 

 

Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii

Idaho
Illinois
Indiana

Iowa

Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada

New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee

OOOOOOOMOOWOOOOOOWOHUOOOOOOHOOOOHOOOOUOOOO
NOOO-bol—‘OJOOQOOOOOOI-‘OHNHOOOOHl—‘HWHOOOOOOOOHOO

135

Table B-4 (cont'd.)

 

 

=..=__.—_ —_'B==‘Eligi le j

Over-the—Counter 1969 and 1970

 

 

 

Companies Listed Companies

State Number Number
Texas 1 5
Utah 0 0
Vermont 0 0
Virginia 0 0
Washington 2 1
West Virginia 0 0
Wisconsin 4 1
Wyoming 0 0
Washington, D.C. 1 0
Foreign '_Q _Q

26 47

 

136

Table B-5

RESPONDENTS'INDUSTRIAL CLASSIFICATION:
AMERICAN COMPANY GROUP

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Industrial Division Number Percent Number Percent
Agriculture, Forestry,

Fisheries 0 0 l 1
Mining 4 4 7 8
Contract Construction 2 2 4 4
Manufacturing 66 69 43 47
Transportation,

Communication,

Electric, Gas and

Sanitary Services 0 0 l 1
Wholesale and Retail

Trade 17 18 15 16
Finance, Insurance and

Real Estate 0 0 0 0
Services 6 6 20 22
Government 0 O 0 0
Nonclassifiable

Establishments 0 0 O 0

95 99a 91 99a

 

aNumbers do not add to 100 because of rounding.

137
Table B-6

RESPONDENTS INDUSTRIAL CLASSIFICATION:
NEW YORK COMPANY GROUP

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Industrial Division Number Percent Number Percent
Agriculture, Forestry,

Fisheries 0 0 0 0
Mining 0 O 2 4
Contract Construction 0 0 2 4
Manufacturing 20 77 30 64
Transportation,

Communication,

Electric, Gas and
Sanitary Services

Wholesale and Retail
Trade

Finance, Insurance and
Real Estate

Services

0

6 23 4 9

0

0
Government 0 O 0 0

0

26

oo
cor-J
.n—l

\JN

Nonclassifiable
Establishments

163 47 100

 

138

Table B-7

RESPONDENTS' TITLES:
AMERICAN COMPANY GROUP

 

 

 

 

 

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Title Number Percent Number Percent
Chairman 11 12 10 11
President 50 53 50 55
Vice-President 18 19 19 21
Treasurer 9 9 6 6
Company Secretary 1 l 3 3
Administrative Assistant 3 3 0 0
Public Relations Directors 0 0 l 1
Miscellaneous 0 0 O 0
No Title Checked 3 3 2 2
Total 5 oo 91 99a
aNumbers do not add to 100 because of rounding.
Table B-8
RESPONDENTS' TITLES:
NEW YORK COMPANY GROUP
Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Title Number Percent Number Percent
Chairman 3 12 4 9
President 10 38 22 47
Vice-President 6 23 14 30
Treasurer 5 19 3 6
Company Secretary 0 0 0 0
Administrative Assistant 1 4 2 4
Public Relations Directors 0 0 1 2
Miscellaneous 0 0 1 2
No Title Checked 1 4 0 0
Total 33 I56 47 I66

 

139
Table B-9

RESPONDENTS' AGES:
AMERICAN COMPANY GROUP

 

 

Age Bracket

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies

 

 

Number Percent Number Percent

 

26-35

36—45

46-55

56-65

65 and over

No age checked
Total

8 8 13 14
22 23 19 21
39 41 42 46
23 24 13 14

2 2 2 2

1 1 2 2
53 ‘333 3T 356

 

aNumbers do not add to 100 because of rounding.

Table B-lO

RESPONDENTS' AGES:
NEW YORK COMPANY GROUP

 

 

Age Bracket

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies

 

Number Percent Number Percent

 

26-35

36-45

46-55

56-65

65 and over

No age checked

Total

1 4 6 13
6 23 14 3o
10 38 22 47
9 35 5 11
o o o o
o o o 0
SE 166 I7 1613

 

aNumbers do not add to 100 because of rounding.

140

Table B-ll

RESPONDENTS' LEVEL OF EDUCATION:
AMERICAN COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Educational Level Number Percent Number Percent
High School 2 2 2 2
Some College 15 16 13 14
Bachelor's Degree 32 34 25 27
Some Advanced Work 17 18 26 29
Master's Degree 19 20 16 18
Ph.D. Degree 2 2 1 1
Law Degree 6 6 5 5
C.P.A. Certificate 1 1 3 3
No Answer Given _1 __1 _Q _Q
Total 95 100 91 99a

 

aNumbers do not add to 100 because of rounding.

Table B-12

RESPONDENTS' LEVEL OF EDUCATION:
NEW YORK COMPANY GROUP

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Educational Level Number Percent Number Percent
High School 1 4 2 4
Some College 1 4 4 9
Bachelor's Degree 11 42 13 28
Some Advanced Work 1 4 11 23
Master's Degree 9 35 13 28
Ph.D. Degree 0 0 O 0
Law Degree 2 8 1 2
C.P.A. Certificate 0 O 2 4
No Answer Given 1 __4 _l __2

N
0‘
i..-
O
H
b
\l
H
O
Q

Total

 

RESPONDENTS'

141

Table B-l3

PARTICIPATION IN INVESTMENT
COURSES OR SEMINARS:
AMERICAN COMPANY GROUP

 

 

Question

Have you taken an
Investment Course or

Eligible
Over-the-Counter
Companies

 

Number Percent

1969 and 1970
Listed Companies
Number Percent

 

 

Seminar?
Yes 16 17 17 19
No 74 78 71 78
No answer given _5 5 _3 3
Total 95 100 91 100
Table B-l4
RESPONDENTS' PARTICIPATION IN INVESTMENT

COURSES OR SEMINARS:
NEW YORK COMPANY GROUP

 

 

Question

Have you taken an
Investment Course or

Seminar?

Yes
No

No answer given

Total

Eligible
Over-the-Counter

Companies
Number Percent

3 12
20 77
_;_ __12
26 101a

1969 and 1970
Listed Companies
Number Percent

13 28
32 68
._E .__i
47 100

 

aNumbers do not add to 100 because of rounding.

142

Table B-15

FINANCIAL AND HISTORICAL DATA:
AMERICAN COMPANY GROUP

(Arithmetic Averages)

 

 

Financial and

Eligible

Over-the-Counter

1969 and 1970‘

 

 

 

Historical Data Companies Listed Companies
Net Tangible Assetsa $16,028 $ 9,875
Net Incomea $ 1,934 $ 1,644
Pre-tax Incomea $ 3,673 $ 3,017
Market Price
High $35.47 $26.73
Low $19.57 $12.95
Market Value of Publicly
Held Sharesa $16,000 $11,714
Stockholder Data
Shares Outstandinga 1,359 1,935
Shares Publicly Helda 843 938
Number of Stockholders 2,395 1,882
Historical Data
Company Age 44.7 19.4

 

a
Numbers in thousands.

143

Table B-16

FINANCIAL AND HISTORICAL DATA:

NEW YORK COMPANY GROUP
(Arithmetic Averages)

 

 

 

 

 

Eligible
Financial and Over-the-Counter 1969 and 1970
Historical Data Companies Listed Companies
Net Tangible Assetsa $52,434 $37,399
Net Incomea $ 7,038 $ 7,265
Pre-tax Incomea $13,794 $11,822
Market Price
High $58.75 $42.30
Low $35.88 $21.68
Market Value of Publicly
Held Sharesa $57,744 $81,651
Stockholder Data
Shares Outstandinga 2,766 4,298
Shares Publicly Helda 1,823 2,999
Number of Shareholders 3,873 4,762
Historical Data
Company Age 55.9 34.6

 

a .
Numbers in thousands.

144

Table B-17

AUTHORIZES RELEASES OF INVESTOR INFORMATION:
AMERICAN COMPANY GROUP

 

 

 

 

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Compapies Listed Companies
Position Number Percent Number Percent
Chairman 6 6 6 7
President 60 63 58 64
Vice-President 19 20 17 19
Treasurer 2 2 3 3
Secretary 1 1 1 1
Public Relations Director 0 0 l 1
Other Positions 0 0 1 1
No Answer Given _1 _Z' _4 .__1
Totals 95 99a 91 100
aNumbers do not add to 100 because of rounding.
Table B-18
AUTHORIZES RELEASES OF INVESTOR INFORMATION:
NEW YORK COMPANY GROUP
Eligible
Over-the-Counter 1969 and 1970
Compamies Listed Companies
Position Number Percent Number Percent
Chairman 0 0 5 11
President 18 69 25 53
Vice-President 4 15 13 28
Treasurer 2 8 1 2
Secretary 0 0 0 0
Public Relations Director 0 0 0 0
Other Positions 0 O 2 4
No Answer Given _2 __§_ _1 __3
Totals 26 100 47 100

 

145

Table B-l9

INVESTOR RELATIONS AND EMPLOYEE STOCK PLANS:
AMERICAN COMPANY GROUP

 

 

Eligible

Over-the-Counter

1969

and 1970

 

 

 

Companies Listed Companies
Question Number Percent Number Percent
Investor Relations
Program
Yes 44 46 45 49
No 38 40 37 41
No answer given 12' _14_ ‘_g _;g
Totals 95 100 91 100
Individual Responsible
for Investor Relations
Yes 76 80 76 84
No 13 14 11 12
No answer given _§ __§ _4 __4
Totals 95 100 91 100
Stock Option Plan for
Executives
Yes 72 76 82 90
No 18 19 6 7
No answer given _§' __§_ _3 __3
Totals 95 100 91 100
Employee (other than
executive) Stock
Purchase Plan
Yes 38 40 28 31
No 53 56 57 63
No answer given _1 __4 ‘_§ __1
95 100 91 101a

Totals

 

aNumbers do not add to 100 because of rounding.

Table B-20

146

INVESTOR RELATIONS AND EMPLOYEE STOCK PLANS:
NEW YORK COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Question Number Percent Number Percent
Investor Relations
Program
Yes 10 38 31 66
No 12 46 15 32
No answer given _4. 15 _1. __2
Totals 26 99a 47 100
Individual Responsible
for Investor Relations
Yes 16 62 42 89
No 7 27 4 9
No answer given ‘_3 _12 _1 __2
Totals 26 101a 47 100
Stock Option Plan for
Executives
Yes 18 69 42 89
No 6 23 2 4
No answer given _2 .__§ _3 ._§
Totals 26 100 47 99a
Employee (other than
executive) Stock
Purchase Plan
Yes 11 42 29 62
No 14 54 16 34
No answer given _1 __4 _2_ __4
Totals 26 100 47 100

 

aNumbers do not add to 100 because of rounding.

147

Table B-21

FINANCIAL SPECIALISTS ON THE BOARD OF DIRECTORS:
AMERICAN COMPANY GROUP

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Financial Specialists Average Average
on the per per
Board of Directors Number Company Number Company
Broker/Dealers 13 .14 16 .18
Investment Bankers 27 .28 52 .15
Commercial Bankers 41 .43 37 .41
Insurance Executives 11 .12 9 .10
Financial Writers 4 .04 9 .10
Other Professions
Lawyers 2 .02 12 .13
Accountants 1 .01 3 .03
Professors 1 .01 0 .00
Others 7 .08 6 .07
Sub Totals 11 .12 21 .23

Totals 107 1.13 144 1.58

 

148

Table B-22

FINANCIAL SPECIALISTS ON THE BOARD OF DIRECTORS:
NEW YORK COMPANY GROUP

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Financial Specialists Average Average

on the per per

 

Board of Directors Number Company Number Company
Broker/Dealers 3 .12 4 .09
Investment Bankers 8 .31 22 .47
Commercial Bankers 11 .42 23 .49
Insurance Executives 3 .12 2 .05
Financial Writers 1 .04 4 .09
Other Professions

Lawyers 0 .00 2 .05
Accountants 0 .00 0 .00
Professors 0 .00 0 .00
Others 1 .04 17 .36
Sub Totals 1 .04 19 .41

Totals 27 1.04 74 1.57

 

149

Table B-23

OVER-THE-COUNTER MARKET MAKING DEALERS:
AMERICAN COMPANY GROUP

 

 

 

 

Eligible

Over-the-Counter
Companies

Number of Dealers Number Percent
1-5 36 38
6-10 41 43
11-15 14 16
16-20 4 4
21-25 0 0
26-30 _2 0
Total 95 100

Arithmetic Mean 7.4

Range 2-19

 

150
Table B-24

OVER-THE-COUNTER MARKET MAKING DEALERS:
NEW YORK COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter
Companies
Number of Dealers Number Percent
1-5 7 27
6—10 14 54
11-15 1 4
16-20 2 8
21-25 1 4
26-30 _1 ‘__4
Total 26 101a
Arithmetic Mean 9.6
Range 2-30

 

aNumbers do not add to 100 because of rounding.

151
Table B-25

INSTITUTIONAL HOLDERS OF COMPANY STOCK
BEFORE AND AFTER LISTING:

AMERICAN COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Number of Holders Before Aftera Before After
0 9 38 9
1-5 35 24 27
6-10 17 3 17
11-15 9 2 2
16-20 3 1 5
21-25 2 1 2
26-30 1 0 0
31-35 2 0 0
36-100 4 0 6
No answer given/do
not know 12_ 22 23
Totals 95 91 91
Arithmetic Mean 9.4 2.1 11.6
Range 0-100 0-25 0-100

 

aNot applicable as companies are not listed.

152

Table B-26

INSTITUTIONAL HOLDERS OF COMPANY STOCK
BEFORE AND AFTER LISTING:

NEW YORK COMPANY GROUP

 

 

 

 

 

Eligible
Over-the—Counter 1969 and 1970
Companies Listed Companies
Number of Holders Before Aftera Before After
0 2 l3 1
1-5 7 11 5
6-10 2 2 12
11-15 0 2 5
16-20 2 0 2
21-25 0 0 3
26-30 2 2 2
31-35 0 1 1
36-100 4 0 7
No answer given/do
not know _1 lg _2
Totals 26 47 47
Arithmetic Mean 17.5 5.5 27.6
Range 0-50 0-35 0-84

 

aNot applicable as companies are not listed.

153

Table B-27

FREQUENCY AND DISTRIBUTION OF FINANCIAL INFORMATION:
AMERICAN COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Question Number Percent Number Percent
Send balance sheet
information to common
stockholders
Never 0 0 0 0
Quarterly 27 28 18 20
Semi-annually 3 3 2 2
Annually 65 68 69 76
Other times 0 0 0 0
No answer given _9 _Q _2 __2
Totals 95 99a 91 100
Send income statement
information to common
stockholders
Never 0 0 0 0
Quarterly 86 90 84 92
Semi-annually 6 6 4 4
Annually 3 3 3 3
Other times 0 0 0 0
No answer given ‘_9 _Q _Q _9
Totals 95 99a 91 99a
Send balance sheet
information to the
financial press or
wire service
Never 4 4 17 19
Quarterly 31 33 20 22
Semi-annually 3 3 0 0
Annually 55 58 50 55
Other times 1 l 0 0
No answer given ‘_1 __l 4 4

Totals 95 100 91 100

154

Table B-27 (cont'd.)

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Question Number Percent Number Percent
Send income statement
information to the
financial press or
wire service
Never 0 0 0 0
Quarterly 86 90 86 95
Semi-annually 3 3 2 2
Annually 5 5 2 2
Other times 0 0 0 0
No answer given _1 _l _l __1
Totals 95 99a 91 100
Solicit proxies from
stockholders
Never 1 1 0 0
Quarterly 2 2 0 0
Semi-annually 0 0 0 0
Annually 91 96 91 100
Other times 0 0 0 0
No answer given _1 __1 _Q __9
Totals 95 100 91 100
Send other types of
information to company
stockholders
Never 7 7 11 12
Quarterly 32 34 27 30
Semi-annually 3 3 5 5
Annually 11 12 5 5
Other times 34 36 27 30
No answer given _8 ‘__8 lg _18
Totals 95 100 91 100

 

aNumbers do not add to 100 because of rounding.

155
Table B-28

FREQUENCY AND DISTRIBUTION OF FINANCIAL INFORMATION:
NEW YORK COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Question Nimber Percent Number Percent
Send balance sheet
information to common
stockholders
Never 0 0 0 0
Quarterly 7 27 10 21
Semi-annually 0 0 1 2
Annually 19 73 36 77
Other times 0 0 O 0
No answer given _9 __Q _Q __9
Totals 26 100 47 100
Send income statement
information to common
stockholders
Never 0 0 0 0
Quarterly 25 96 45 96
Semi-annually O 0 l 2
Annually 1 4 1 2
Other times 0 O 0 0
No answer given _2 __Q ._Q __Q
Totals 26 100 47 100
Send balance sheet
information to the
financial press or
wire service
Never 1 4 8 17
Quarterly 9 35 8 17
Semi-annually O 0 1 2
Annually 16 62 30 64
Other times 0 0 0 0‘
No answer given _9 ‘__Q _Q __0
Totals 26 101a 47 100

156

Table B-28 (cont'd.)

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Question Number Percent Number Percent
Send income statement
information to the
financial press or
wire service
Never 0 0 0 0
Quarterly 25 96 44 94
Semi-annually 0 0 1 2
Annually 1 4 1 2
Other times 0 0 0 0
No answer given _2. __Q _1 ‘__2
Totals 26 100 47 100
Solicit proxies from
stockholders
Never 0 0 0 0
Quarterly 0 0 1 2
Semi-annually 0 0 0 0
Annually 25 96 45 96
Other times 0 0 1 2
No answer given ._1 __4 ‘_Q .__0
Totals 26 100 47 100
Send other types of
information to company
stockholders
Never 3 12 3 6
Quarterly 9 35 17 36
Semi-annually 0 0 1 2
Annually 0 0 3 6
Other times 7 27 17 36
No answer given _1 _21 _§_ .13
Totals 26 101a 47 99a

 

aNumbers do not add to 100 because of rounding.

157
Table B-29

PERSONAL CONTACTS INITIATED BY COMPANIES:
AMERICAN COMPANY GROUP

 

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970

Item Companies Listed Companies
Number of Companies 95 91
Percent of Companies

Initiating Contact 39 33
Average Number of Contacts

Made by Companies which

Initiated Contact 2.3 2.7
Range of Number of Contacts 0-10 0-30

Table B-30

PERSONAL CONTACTS INITIATED BY COMPANIES:
NEW YORK COMPANY GROUP

 

 

 

 

 

 

m l 1===-r
Eligible
Over-the-Counter 1969 and 1970
Item Companies Listed Companies
Number of Companies 26 47

Percent of Companies
Initiating Contact 14 13

Average Number of Contacts
Made by Companies which
Initiated Contact 2.5 2.6

Range of Number of Contacts 0-5 1-5

 

158
Table B-31

TELEPHONE CONTACTS INITIATED BY COMPANIES:
AMERICAN COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970

Item Companies Listed Companies
Number of Companies 95 91
Percent of Companies

Initiating Contact 40 33
Average Number of Contacts

Made by Companies which

Initiated Contact 4.3 6.9
Range of Number of Contacts 0-50 0-60

Table B-32

TELEPHONE CONTACTS INITIATED BY COMPANIES:
NEW YORK COMPANY GROUP

 

 

 

Eligible
Over-the-Counter 1969 and 1970

Item Companies Listed Companies
Number of Companies 26 47
Percent of Companies

Initiating Contact 27 26
Average Number of Contacts

Made by Companies which

Initiated Contact 5.8 7.0

Range of Number of Contacts 0-10 2-30

 

159
Table B-33

WRITTEN CONTACTS INITIATED BY COMPANIES:
AMERICAN COMPANY GROUP

 

 

 

Eligible
Over-the-Counter 1969 and 1970

Item Companies Listed Companies
Number of Companies 95 91
Percent of Companies

Initiating Contact 20 21
Average Number of Contacts

Made by Companies Which

Initiated Contact 1.6 1.4
Range of Number of Contacts 0-10 0-6

Table B-34

WRITTEN CONTACTS INITIATED BY COMPANIES:
NEW YORK COMPANY GROUP

 

 

 

Eligible
Over-the-Counter 1969 and 1970

Item Companies Listed Companies
Number of Companies 26 47
Percent of Companies

Initiating Contact 15 13
Average Number of Contacts

Made by Companies Which

Initiated Contact 4.7 2.3

Range of Number of Contacts 0-10 1—4

 

160
Table B-35

PERSONAL CONTACTS INITIATED BY ANALYSTS:
AMERICAN COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970

Item Companies Listed Companies
Number of Companies 95 91
Percent of Companies

Receiving Contact 76 68
Average Number of Contacts

Made to Companies Which

were Contacted 2.5 3.4
Range of Number of Contacts 0-18 0-15

Table B-36

PERSONAL CONTACTS INITIATED BY ANALYSTS:
NEW YORK COMPANY GROUP

 

 

 

Eligible
Over-the-Counter 1969 and 1970

Item Companies Listed Companies
Number of Companies 26 47
Percent of Companies

Receiving Contact 73 91
Average Number of Contacts

Made to Companies Which

were Contacted 4.8 4.5

Range of Number of Contacts 1-20 1-15

 

161
Table B-37

TELEPHONE CONTACTS INITIATED BY ANALYSTS:
AMERICAN COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970

Item Companies Listed Companies
Number of Companies 95 91
Percent of Companies

Receiving Contact 87 88
Average Number of Contacts

Made to Companies Which

were Contacted 7.2 9.6
Range of Number of Contacts 1-50 0-40

Table B-38

TELEPHONE CONTACTS INITIATED BY ANALYSTS:
NEW YORK COMPANY GROUP

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Item Companies Listed Companies
Number of Companies 26 47
Percent of Companies
Receiving Contact 88 94

Average Number of Contacts

Made to Companies Which

were Contacted 12.4 15.0
Range of Number of Contacts 3-50 3-63

162
Table B-39

WRITTEN CONTACTS INITIATED BY ANALYSTS:
AMERICAN COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970

Item Companies Listed Companies
Number of Companies 95 91
Percent of Companies

Receiving Contact 57 54
Average Number of Contacts

Made to Companies Which

were Contacted 4.9 6.9
Range of Number of Contacts 0-40 0-50

Table B-40

WRITTEN CONTACTS INITIATED BY ANALYSTS:
NEW YORK COMPANY GROUP

 

 

 

Eligible
Over-the-Counter 1969 and 1970

Item Companies Listed Companies
Number of Companies 26 47
Percent of Companies

Receiving Contact 58 55
Average Number of Contacts

Made to Companies Which

were Contacted 9.8 6.5

Range of Number of Contacts 1-25 1-25

 

163
Table B-4l

COMPANY (INTERNAL) DISCUSSIONS REGARDING LISTING:
AMERICAN COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter
Companies
Question Number Percent
Has there been (internal)
discussion by officers?
Yes 79 83
No 10 11
No comment 4 4
No answer given 2 2
Total 95 100

 

Table B-42

COMPANY (INTERNAL) DISCUSSIONS REGARDING LISTING:
NEW YORK COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter
Companies
Question Number Percent
Has there been (internal)
discussion by officers?
Yes 20 77
No 2 8
No comment 1 4
No answer given ‘_3 _12
Total 26 101a

 

aNumbers do not add to 100 because of rounding.

164
Table B-43

INTEREST IN A VOLUNTARY DELISTING OPTION:
AMERICAN COMPANY GROUP

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Question Number Percent Number Percent
Is a voluntary delisting
option important?
Yes 10 11 14 15
No 75 79 72 79
No answer given 19 _11’ ‘_§ _5
Total 95 lola 91 99a

 

aNumbers do not add to 100 because of rounding.

Table B-44

INTEREST IN A VOLUNTARY DELISTING OPTION:
NEW YORK COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Question Number Percent Number Percent
Is a voluntary delisting
option important?
Yes 2 8 5 11
No 23 88 40 85
No answer given _1_ __4 _2 __4
Total 26 100 47 100

 

165
Table B-45

LISTING DISCUSSIONS WITH OVER-THE-COUNTER DEALERS:
AMERICAN COMPANY GROUP

 

 

 

 

 

Eligible
Over-The-Counter 1969 and 1970
Companies Listed Companies
Questions Number Percent Number Percent
Did you discuss with
your over-the-counter
dealers the possibility
of listing your stock?
Yes 53 56 48 53
No 31 33 35 38
No comment 10 10 0 0
No answer given _1_ __l _8 __g
Total 95 100 91 100
If yes, the dealer's
attitude was
Extremely against
listing 5 5 5 5
Moderately against
listing 7 7 10 12
Slightly against
listing 12 13 8 9
Neutral 12 13 10 12
Slightly favorable 7 7 5 5
Moderately favorable 4 4 5 5
Extremely favorable 5 5 5 5
No answer given 43 ‘45 '43 _41
Total 95 99a 91 100

 

aNumbers do not add to 100 because of rounding.

166

Table B-46

LISTING DISCUSSIONS WITH OVER-THE-COUNTER DEALERS:
NEW YORK COMPANY GROUP

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Questions Number Percent Number Percent
Did you discuss with
your over-the-counter
dealers the possibility
of listing your stock?
Yes 16 62 22 47
No 8 31 21 45
No comment 2 8 0 0
No answer given _2 __9 _4 .__g
Total 26 101a 47 101a
If yes, the dealer's
attitude was -
Extremely against
listing 4 15 3 6
Moderately against
listing 2 8 3 6
Slightly against
listing 3 12 5 11
Neutral 3 12 2 4
Slightly favorable 1 4 3 6
Moderately favorable 2 8 2 4
Extremely favorable 0 0 3 6
No answer given _1 _42 ‘gg 55
Total 26 101a 47 98a

 

aNumbers do not add to 100 because of rounding.

167

Table B-47

AMERICAN COMPANY GROUP

REASONS FOR OVER-THE-COUNTER DEALER ATTITUDES:

 

 

Eligible
Over-the-Counter

Reasons Given for
OTC Dealer Attitudes

Companies

1969 and 1970
Listed Companies

 

 

Percent Number

Percent

 

OTC better: more market
makers; poor handling
with only one special-
ist; disadvantage
since specialist cannot
be chosen by firm

 

Dealer Subjective reasons:
1. Non-monetary: no
advantage to company;
subjective dealer
opinion; OTC dealer
makes better decisions

 

2. Monetary: (-) loss of
commission; (+) deal-
ers exchange members;
(+) dealers' value
of holdings would
increase

Stock values would increase
with listing

 

Listing advantages:
marketability; stability;
creates more active
market; attracts large
investors (institutions)

 

NASDAQ System: changes
and effects of NASDAQ
still unknown

 

Loss of Company Identity:
may be lost among
listed companies; float
too small

 

ll

12

168

Table B-47 (cont'd.)

 

 

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Reasons Given for Companies Listed Companies
OTC Dealer Attitudes Number Percent Number Percent
Miscellaneous 4 4 2 2
No Answer Given 29 £2 52 65
Totals 95 98a 91 100

 

a
Numbers do not add to 100 because of rounding.

169

Table B-48

NEW YORK COMPANY GROUP

REASONS FOR OVER-THE-COUNTER DEALER ATTITUDES:

 

 

 

Eligible
Over-the-Counter

Reasons Given for Companies
OTC Dealer Attitudes Number Percent

1969 and 1970
Listed Companies

 

Number Percent

 

OTC better:

 

more market

makers; poor handling
with only one special-
ist; disadvantage

since specialist cannot
be chosen by firm

Dealer subjective reasons:
1. Non-monetary: no
advantage to company;
subjective dealer
opinion; OTC dealer
makes better decisions

 

2. Monetary: (-) loss of
commission; (+) deal-
ers exchange members;
(+) dealers' value
of holdings would
increase

Stock values would increase
with listing

 

Listing Advantages:
marketability; stability;
creates more active
market; attracts large
investors (institutions)

 

NASDAQ System: changes
and effects of NASDAQ
still unknown

 

Loss of Company Identity:
may be lost among
listed companies; float
too small

 

12

12

2 4
4 9
5 11
0 0
4 9
0 0
O 0

170

Table B-48 (cont'd.)

 

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Reasons Given for Compapies Listed Companies
OTC Dealer Attitudes Number Percent Number Percent
Miscellaneous 0 0 0 0
No Answer Given ll 65 32 68
Totals 26 101a 47 101a

 

aNumbers do not add to 100 because of rounding.

171
Table B-49

COMMUNICATION WITH EXCHANGES REGARDING LISTING:
AMERICAN COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter
Companies
Question Number Percent
Have you communicated with exchanges?
(listed only)
Yes 53 56
No 37 39
No answer given _5 __5
Total 95 100

 

Table B-50

COMMUNICATION WITH EXCHANGES REGARDING LISTING:
NEW YORK COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter
Companies
Question Number Percent
Have you communicated with exchanges?
(listed only)
Yes 16 62
No 9 35
No answer given _1 __g_
Total 26 101a

 

aNumbers do not add to 100 because of rounding.

172

Table B-51

FREQUENCY AND TYPES OF CONTACT WITH EXCHANGES:
AMERICAN COMPANY GROUP

 

 

 

 

 

 

 

 

 

Eligible

Contact __V Over-the-Counter 1969 and 1970
Initiated Type Companies Listed Companies
by of Number Percent Number Percent

Your Personal 19 20 23 25

Company Telephone 13 14 19 21

Written 13 14 25 27

American Personal 23 24 18 20

Exchange Telephone 12 13 13 14

Written 21 22 21 23

New York Personal 21 22 2 2

Exchange Telephone 4 4 3 3

Written 12 13 3 3

Midwest Personal 4 4 0 0

Exchange Telephone 2 2 1 1

Written 10 ll 2 2

Other Personal 2 2 5 5

Telephone 0 0 3 3

Written 1 l 4 4

 

173
Table B-52

FREQUENCY AND TYPES OF CONTACT WITH EXCHANGES:
NEW YORK COMPANY GROUP

 

 

 

 

 

 

 

 

 

m J
Eligible
Contact Over-the-Counter 1969 and 1970
Initiated Type Companies Listed Companies
by of Number Percent Number Percent
Your Personal 6 23 20 43
Company Telephone 2 8 12 26
Written 3 12 18 38
American Personal 3 12 5 11
Exchange Telephone 3 12 4 9
Written 5 19 5 11
New York Personal 9 35 7 15
Exchange Telephone 6 23 6 13
Written 6 23 5 11
Midwest Personal 0 0 2
Exchange Telephone 0 0 l 2
Written 5 l9 0 0
Other Personal 1 4 3 6
Telephone 1 4 3 6
Written 1 4 4 9

 

174
Table B-53

LISTING INTENTIONS OF UNLISTED COMPANIES:
AMERICAN COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter
Companies
Questions Number Percent
Does your company plan
on eventually listing
its stock on an exchange?
Yes 40 42
No 4 4
Undecided 35 37
No comment l3 14
Answer not given ‘_3 3
Total 95 100
If yes, on which exchange?
American 10a 11
New York .43 ‘45
Total 53 56

 

aOf the ten companies which indicated they would list
on the American Exchange, six also stated they would
(later) list on the New York.

175

Table B-54

LISTING INTENTIONS OF UNLISTED COMPANIES:
NEW YORK COMPANY GROUP

 

 

 

 

Eligible
Over-the-Counter
Companies
Questions Number Percent
Does your company plan
on eventually listing
its stock on an exchange?
Yes 10 38
No 3 12
Undecided 9 35
No comment 4 15
Answer not given _9 __Q
Total 26 100
If yes, on which exchange?
American 0 0
New York 13_ _Q
Total 13 50

 

176
Table B-SS

LISTING INTENTIONS OF LISTED COMPANIES:
AMERICAN COMPANY GROUP

 

 

1969 and 1970
Listed Companies
Question Number Percent

 

 

Does your company plan
to eventually list its
stock on the:

American Stock Exchange?

Yes 0 0
No 0 0
No comment 0 0
Not applicable 91 100
Not answered _9 __Q
Total 91 100
New York Stock Exchange?
Yes 34 37
No 3 3
No comment 19 21
Not applicable 0 0
Not answered .3; 3g
Total 91 99a

 

aNumbers do not add to 100 because of rounding.

177

Table B-56

LISTING INTENTIONS OF LISTED COMPANIES:
NEW YORK COMPANY GROUP

 

 

1969 and 1970
Listed Companies
Question Number Percent

 

 

Does your company plan
to eventually list its
stock on the:

American Stock Exchange?

Yes 0 O
No 0 O
No comment 0 0
Not applicable 47 100
Not answered _9_ 0

Total 47 100

New York Stock Exchange?

Yes 0 O
No 0 0
No comment 0 0
Not applicable 47 100
Not answered _2_ 0

Total 47 100

 

"DUAL" LISTING INTENTIONS:

178

Table B-57

AMERICAN COMPANY GROUP

 

 

Eligible

Over-the-Counter

1969 and 1970

 

 

 

 

Companies Listed Companies

Questions Number Percent Number Percent

If your company is or

were to be liste ,

would you also consider

dual listing on a

Regional Exchange?
Yes 15 16 36 40
No 67 71 45 49
Undecided 4 4 2 2
No answer given _9 __9 _§ .__9

Total 95 100 91 100

If yes to dual listing,

what Regionals would

you consider?
Boston 1 1 6 7
Cincinnati 2 2 0 0
Detroit 1 1 2 2
Midwest 10 ll 5 5
Pacific Coast 5 5 19 21
Phil-Balt-Wash. 1 l 4 4
Pittsburgh 0 O 0 0
Salt Lake 1 1 0 0
Spokane 0 0 0 O
Other 0 O 2 2

 

-—-—_..——

179

Table B-58

"DUAL" LISTING INTENTIONS:

NEW YO

RK COMPANY GROUP

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Questions Number Percent Number Percent
If your company is or
were to be listed,
wouldfyou also consider
dual listing on a
Regional Exchange?
Yes 9 35 23 49
No 16 62 15 32
Undecided O 0 1 2
No answer given _1 __4 ‘_§ ‘_11
Total 26 101a 47 100
If yes to dual listing,
what Regional would
you consider?
Boston 0 O 3 6
Cincinnati 1 4 0 0
Detroit 0 0 l 2
Midwest 5 l9 8 17
Pacific Coast 2 8 19 40
Phil-Balt-Wash. 0 0 6 13
Pittsburgh 0 O 0 0
Salt Lake 0 0 0 O
Spokane 0 O O 0
Other 0 0 0 O

 

aNumbers do not add to 100 because of rounding.

180

Table B-59

LISTING REQUEST ACTIVITY:
AMERICAN COMPANY GROUP

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Questions Number Percent Number Percent
Has your company
requested listing
on an exchange
within the past
three years?b
Yes 6 6
No 85 89
No comment 2 2
No answer given _2_ _3
Total 95 99a
For which exchanges
has your company
requested listing
within the last
three years?
American 1 l 2 2
New York 6 6 33 36
National -C -C O 0
Midwest O 0 0 0
Pacific Coast 0 0 5 5
Other Regional 0 0 l l

 

aNumbers do not add to 100 because of rounding.

bListed companies were not asked this question.

CThis exchange inadvertently not included on unlisted
company questionnaire.

181
Table B-60

LISTING REQUEST ACTIVITY:
NEW YORK COMPANY GROUP

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Questions NumBer Percent Number Percent
Has your company
requested listing
on an exchange
within the past
three years?
Yes 1 4
No 22 85
No comment 1 4
No answer given _2 __8
Total 26 101a
For which exchanges
has your company
requested listing
within the last
three years?
American 0 0 9 19
New York 1 4 15 32
National ‘C ‘c 0 0
Midwest 0 0 3 6
Pacific Coast 0 0 6 13
Other Regional 0 0 O 0

 

aNumbers do not add to 100 because of rounding.
bListed companies were not asked this question.

CThis exchange inadvertently not included on unlisted
company questionnaire.

182

Table B-61

PLANS FOR SELLING ADDITIONAL STOCK:
AMERICAN COMPANY GROUP

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Compagies Listed Companies
Question Number Percent Number Percent
Do you intend to
sell additional
stock?
Yes 16 17 23 25
No 26 27 21 23
No comment 22 23 19 20
Undecided 29 31 26 29
No answer given _2 __2_ _2 ‘_2
Total 95 100 91 99a

 

aNumbers do not add to 100 because of rounding.

Table B-62

PLANS FOR SELLING ADDITIONAL STOCK:
NEW YORK COMPANY GROUP

 

 

Eligible

Over-the-Counter

 

1969 and 1970

 

 

Companies Listed Companies
Question Number Percent Number Percent
Do you intend to
sell additional
stock?
Yes 3 12 6 13
No 16 62 22 47
No comment 3 12 8 17
Undecided 4 15 ll 23
No answer given _9 __Q _Q __Q
Total 26 101a 47 100

 

a
Numbers do not add to 100 because of rounding.

183

Table B-63

EXECUTIVE PREFERENCE FOR CONFIDENTIAL RESPONSES:
AMERICAN COMPANY GROUP

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Question Number Percent Number Percent
Do you wish to be
quoted or remain
anonymous?
Anonymous 77 81 77 85
Quoted 4 4 7 8
No answer given 14' _15 _l 8
Total 95 100 91 101a

 

aNumbers do not add to 100 because of rounding.

Table B-64

EXECUTIVE PREFERENCE FOR CONFIDENTIAL RESPONSES:
NEW YORK COMPANY GROUP

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Cqmpanies
Question Number Percent Number Percent
Do you wish to be
quoted or remain
anonymous?
Anonymous 23 88 38 81
Quoted 0 0 4 9
No answer given _3 _12 _§ ‘_11
Total 26 100 47 101a

 

aNumbers do not add to 100 because of rounding.

184

Table B-65

AMERICAN EXCHANGE LISTING EXPENSES:
AMERICAN COMPANY GROUP

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies

 

 

Question Response Number Percent Number Percepp

Fees preclude Yes 6 6 2 2
listing? No 69 73 74 81
No answer 2Q _21 ‘15 16
Total 95 100 91 99a
Fees are an Yes 16 17 12 13
important No 59 62 66 73
portion of No answer 22 _21 l; _14
listing Total 95 100 91 100
decision?
Registrar and Yes l2 l3 7 8
transfer agent No 63 66 7O 77
expenses are No answer 22' .2l 14 _15
significant Total 95 100 91 100
decision
variables?
Expenses Yes 7 7 7 8
associated No 65 68 70 77
with reporting No answer 23 24 14 _15
requirements Total 95 99a 91 100

are signifi-
cant variables?

Total expenses Yes 7 7 4 4

associated No 67 71 72 79

with listing No answer ‘31 _22 12 16

are signifi- Total 95 100 91 99a
cant?

 

aNumbers do not add to 100 because of rounding.

NEW YORK EXCHANGE LISTING EXPENSES:

185

Table B-66

NEW YORK COMPANY GROUP

 

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Question Re§ponse Number Percent Number Percent
Fees preclude Yes 2 8 0 0
listing? No 16 62 22 47
No answer _8 ._3l 2; ._§2
Total 26 101a 4 100
Fees are an Yes 2 8 3 6
important No 14 54 20 43
portion of No answer 12_ _38 21 _51
listing Total 26 100 47 100
decision?
Registrar and Yes 0 0 2 4
transfer agent No 15 58 18 38
expenses are No answer 11 _42 21 51
significant Total 26 100 47 99a
decision
variables?
Expenses Yes 0 0 1 2
associated No 15 58 19 40
with reporting No answer 11’ '_42 21 51
requirements Total 26 100 47 99a
are signifi-
cant variables?
Total expenses Yes 0 o 1 2
associated No 15 53 19 40
with listing No answer 11 42 27 57
are Signlfl' Total 26 100 47 99a

cant?

 

aNumbers do not add to 100 because of rounding.

186

Table B-67

EXPECTATIONS OF EXCHANGE EFFICACY:
AMERICAN COMPANY GROUP

 

 

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Afithe Standard Arith- Standard

How Listing is metic Devia- metic Devia-
Expected to Effect: Mean tion Mean tion
Ownership Base: (Number

of Shareholders) 4.66 1.04 5.60 .90
Marketability of Stock

(Saleability) 4.99 1.05 5.99 .78
Management Control a a a a
Loss of Sales Support

by Over-the-Counter

Market-Making Dealers 2.75 1.23 3.23 1.10
Sales of Additional Stock 4.97 .99 5.25 1.13
Transactions (Volume of

sales) 4.82 1.16 5.38 .91
Company's Credit Rating 4.25 .68 4.65 .95
Access to Money and

Capital Markets 4.62 .82 5.17 .93
Price Volatility of Stock

(Fluctuations) 4.21 1.30 4.53 1.24
Offers an "Advertising

Value" 4.55 .81 5.00 .84
Analysis of Stock and

Company by Potential

Investors 4.90 .83 5.51 .82
Prestige for your Company 4.82 .88 5.70 .82
Emphasis on Short-Run

Operations a a a a

 

187

Table B-67 (cont'd.)

 

 

 

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Arith- Standard Arith- Standard
How Listing is metic Devia- metic Devia-
Expected to Effect: Mean tion Mean tion
Requirements for Report-
ing to:
Stockholders 3.96 .58 4.16 .93
Public 3.96 .58 4.12 .97
Exchanges 3.82 .83 4.03 1.09
Merger (Your Company's
Ability to Acquire
Other Firms) 4.95 .84 5.39 .96
Merger (The Attractive-
ness of Your Firm, if
Listed, to Other Firms) 4.56 .94 4.84 1.11
Loan Value of Stock for
Shareholders 4.67 .95 5.38 1.03
Newspaper Publicity on
Prices 4.75 .95 5.38 1.12
Newspaper Publicity on
Volume 4.77 1.13 5.34 1.10
Current Stockholder
Interest 4.74 1.01 5.44 .97
Effect on Price Per
Share 4.29 .88 4.75 1.07
Spread Between "Bid"
and "Ask" 4.62 1.09 5.04 1.01

 

aThese questions imply "direction" as well as "intensity"

and frequently went unanswered. Therefore, they were not
included in the statistical programs utilized. For the
answers received, the average appeared to be 4.

188

Table B-68

EXPECTATIONS OF EXCHANGE EFFICACY:
NEW YORK COMPANY GROUP

 

 

 

 

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Afith- Standard Arith- Standard

How Listing is metic Devia- metic Devia-
Expected to Effect: Mean tion Mean tion
Ownership Base: (Number 5.00 .94 6.10 .97

of Shareholders)
Marketability of Stock

(Saleability) 5.16 1.08 6.28 .81
Management Control a a a a
Loss of Sales Support

by Over-the-Counter

Market-Making Dealers 2.52 1.17 3.48 1.20
Sales of Additional Stock 4.72 .87 5.85 .99
Transactions (Volume of

Sales) 4.68 1.01 5.65 1.11
Company's Credit Rating 4.20 .49 4.95 1.14
Access to Money and

Capital Markets 4.68 .79 5.88 .98
Price Volatility of Stock

(Fluctuations) 3.84 1.22 5.20 1.33
Offers an "Advertising

Value" 4.80 .94 5.25 1.02
Analysis of Stock and

Company by Potential

Investors 5.16 .92 5.88 .90
Prestige for your Company 4.96 .60 6.18 .89

Emphasis on Short-Run
Operations a a a a

189

Table B-68 (cont'd.)

 

 

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Arith- Standard Arith- Standard
How Listing is metic Devia— metic Devia-
Expected to Effect: Mean tion Mean tion
Requirements for Report-
ing to:
Stockholders 4.00 .28 4.15 .94
Public 4.00 .28 4.20 .93
Exchanges 3.84 .78 4.30 1.27
Merger (Your Company's
Ability to Acquire
Other Firms) 4.96 1.15 5.85 .96
Merger (The Attractive-
ness of Your Firm, if ,
Listed, to Other Firms) 4-32 -79 4.73 1-19
Loan Value of Stock for
Shareholders 4.48 .50 4.83 1.32
Newspaper Publicity on
Prices 4.64 .79 5.23 1.13
Newspaper Publicity on
Volume 4.88 .91 5.15 1.17
Current Stockholder
Interest 4.76 .59 5.68 .96
Effect on Price Per
Share 4.32 .61 5.03 1.06
Spread Between "Bid"
and "Ask" 4.36 .48 5.05 1.07

 

aThese questions imply "direction" as well as "intensity"
and frequently went unanswered.

included in the statistical programs utilized.

answers received, the average appeared to be 4.

Therefore, they were not
For the

190

Table B-69

VALUE ASSIGNED TO PROFESSIONAL OPINIONS:
AMERICAN COMPANY GROUP

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies__
Arith- Standard Arith- Standard
metic Devia- metic Devia-
Qpinions of Rank Mean tion Rank Mean tion
Company Officers 2 7.64 2.33 7.18 2.47
Board of Directors 1 9.26 1.40 8.08 2.54
Over-the-Counter a
Dealers 8 4.40 2.24 2.39 1.71
Stock Exchange
Representatives b 3.78 1.88 b b
Investment Bankers 4 6.15 2.73 6.57 2.58
Stockholders 6 5.59 2.64 5.26 2.60
Legal Counsel 5 5.47 2.67 4.31 2.34
Institutional
Investors 7a 4.40 2.12 4.26 2.47
Your Own Opinion 3 6.37 2.28 7.16 2.66

 

 

 

aInstitutional investors assigned the rank of 7 even though
its mean was identical with the over-the-counter dealers'

mean because it had a smaller distribution.

b

This question inadvertently left off the original "Listed"

company questionnaire and is not included in consideration

of rank.

191

Table B-70

VALUE ASSIGNED TO PROFESSIONAL OPINIONS:
NEW YORK COMPANY GROUP

 

 

 

 

 

Eligible
Over-the-Counter 1969 and 1970
Companies Listed Companies
Arith- Standard Arith- Standard
metic Devia- metic Devia-
Opinions of Rank Mean Eion Rank Mean tion
Company Officers 2 7.00 2.91 2 7.93 2.39
Board of Directors 1 8.44 1.98 1 8.58 2.06
Over-the-Counter
Dealers 7 4.20 1.44 8 2.95 2.11
Stock Exchange
Representatives a 4.05 1.91 a a a
Investment Bankers 5 5.20 1.94 4 7.00 2.14
Stockholders 3 6.44 2.71 5 6.13 2.79
Legal Counsel 6 4.64 2.64 7 4.15 2.61
Institutional
Investors 8 3.28 1.51 6 4.98 2.57
Your Own Opinion 4 6.04 2.69 3 7.50 2.40

 

aThis question inadvertently left off the original "Listed"

company questionnaire.

Not included in ranking.

192

Table B-71

DISCRIMINANT COEFFICIENTS FOR THE
AMERICAN AND NEW YORK COMPANY GROUPS

 

 

Discriminant Coefficients for:
American New York

 

 

 

Variable Company Group Company Group
Ownership Base 0.4603 0.0993
Marketability of Stock "o.3902 0.0548
Loss of Sales Support 0.0364 0.1751
Sales of Additional Stock -0.2200 0.1898
Transactions -0.2831 0.0536
Company's Credit Rating -0.1264 -0.1062
Capital Market Access 0.1025 0.1185
Price Volatility of Stock -0.1276 0.1235
Offers an "Advertising Value" 0.0461 0.0978
Analysis of Stock and Company -0.0214 -0.1343
Prestige for your Company 0.0890 0.1911
Requirements for Reporting
to:Stockholders 0.0241 0.6773
Public 0.0579 -0.4172
Exchanges -0.0623 -0.0976
Merger: to Acquire -0.0793 -0.0956
Merger: to be Acquired -0.0035 0.0176
Loan Value of Stock 0.3003 -0.0166
Newspaper Publicity on:
Prices 0.0469 -0.1407
Volume 0.0407 -0.1108
Stockholder Interest 0.2671 0.2224

193

Table B-71 (cont'd.)

 

 

Variable

 

Effect on Price Per Share

Spread Between Bid and Ask

Opinion Weights of:

 

Company Officers

Board of Directors

OTC Dealers

Investment Banker
Stockholders

Legal Counsel
Institutional Investors

Your Own Opinion

Discriminant Coefficients for:

 

American
Companyicroup

 

0.1442

-0.0508
-0.l486
-0.3868

0.1242
-0.1206
-0.1585

0.0838

0.0755

New York
Company Gropp

 

-0.0164

-0.0214

-0.0505
-0.0241
-0.0160
0.0977
0.0540
-0.1649
0.1797

-0.0571

 

194

Table B-72

CLUSTERING OF THE LISTING EXPECTATION VARIABLES:
UNLISTED AMERICAN COMPANIES

 

 

Cluster Number

Cluster Name (Items Included)

 

Exchange Effects
ownership base
marketability of stock
transactions (volume)
effect on share price

 

Loss of OTC Market Support
Floss of_sa1es support

 

Repprting Requirements
stockholders
public
exchanges

Newspaper Publicity
volume publicity

Obtainment of Funds
company's credit rating
access to capital markets
advertising value
loan value of stock

(Cluster not named)
company prestige
price publicity
stockholder interest

(ClUster not named)
sales of additional stock
price volatility of stock
spread: between bid and ask

(Cluster not named)
analysis of stock and company
merger (ability to acquire)
merger (attractiveness of your
firm)

 

195
Table B-73

CLUSTERING OF THE LISTING EXPECTATION VARIABLES:
LISTED AMERICAN COMPANIES

 

 

 

 

Cluster Number Cluster Name (Items Included)
1 Exchange Effects
ownership base
marketability

transactions (volume)
effect on price
spread: between bid and ask

2 Loss of OTC Market Support
loss of sales support

 

3 Reporting Requirements
SEoEkhOIders
public
exchanges

 

4 Newspaper Publicity
prIEe pubIlc1ty
volume publicity

 

5 Obtainment of Funds
company's credit rating
access to capital markets

 

6 (Cluster not named)
price volatility of stock
advertising value
analysis of stock and company
company prestige

 

7 (Cluster not named)
merger (ability to acquire)
loan value of stock
stockholder interest

 

8 (Cluster not named)
sales of additional stock
merger (attractiveness of your
firm)

 

 

196
Table B-74

A FACTOR ANALYSIS OF THE LISTING EXPECTATION VARIABLES:
UNLISTED AMERICAN COMPANIES

 

 

m:

 

 

Factor Factor Name Percent Explained
Number (Items Included) . by Factor
1 Exchange Effects 18.8
marketability
transactions

effects on price per share

2 Loss of OTC Market Support 9.3
loss offisales support
price volatility of stock

 

 

3 Reportipg Requirements 12.2
stockholders
public
exchanges

4 Newspaper Publicipy 8.4

 

volume publicity

5 Obtainment of Funds 20.4
access to capital markets
analysis of stock and company
company's credit rating

 

Total 69.1

 

197
Table B-75

A FACTOR ANALYSIS OF THE LISTING EXPECTATION VARIABLES:
LISTED AMERICAN COMPANIES

 

 

 

Factor Factor Name Percent Explained
Number (Items Included) by Factor
1 Volume of Sales 12.9
transactions
2 Cogporate Status 10.2

 

company prestige
advertising value

 

3 Reporting Requirements 14.0
stockholders
public
exchanges

4 Newspaper Publicity 12.0

 

price puinCIty
volume publicity

5 Obtainment of Funds 8.2
company's credit rating
access to capital markets

 

6 Utility of Stock 8.2
sales ofiadditional stock
merger (ability to acquire)
loan value of stock

 

 

7 (Factor not Named) 5.6
merger (attractiveness of your
firm)

loss of sales support

Total 71.1

 

198
Table B—76

CLUSTERING OF THE PROFESSIONAL OPINION VARIABLES:
UNLISTED AMERICAN COMPANIES

 

 

 

Cluster
Number Opinions of:
1 Company Officers
Board of Directors
Your own Opinion
2 Over-the-Counter Dealers
Investment Bankers
3 Stockholders
Institutional Investors
4 Legal Counsel

 

Table B-77

CLUSTERING OF THE PROFESSIONAL OPINION VARIABLES:
LISTED AMERICAN COMPANIES

 

 

 

Cluster
Number Opinions of:
1 Company Officers
Board of Directors
2 Over-the-Counter Dealers
Institutional Investors
3 Stockholders
Legal Counsel
4 Investment Bankers

Your own Opinion

 

199
Table B-78

A FACTOR ANALYSIS OF THE PROFESSIONAL OPINION VARIABLES:
UNLISTED AMERICAN COMPANIES

 

 

 

Factor Percent Explained
Number by Factor
1 Company Officers 19.4

Board of Directors
Your Own Opinion

2 Stockholders 15.9
Institutional Investors

3 Over-the-Counter Dealers 19.1
Investment Bankers

4 Legal Counsel 14.7

Total 69.1

 

Table B-79

A FACTOR ANALYSIS OF THE PROFESSIONAL OPINION VARIABLES:
LISTED AMERICAN COMPANIES

 

 

 

Factor Percent Explained
Number by Factor
1 Company Officer 27.1

Board of Directors
Your Own Opinion

2 Legal Counsel 25.6
Institutional Investors

 

Total 52.7

 

}_ I

WI‘

200

Table B-80

CLUSTERING OF THE LISTING EXPECTATION VARIABLES:
UNLISTED NEW YORK COMPANIES

 

 

Cluster Number

Cluster Name (Items Included)

 

Exchange Effects

 

owner§hip'base
marketability
transactions F
stockholders interest
effect on share price

 

"J‘ -‘3ml En
. ~ ~ ..

 

loss of‘sales support

Loss of OTC Market Support r
price volatility of stock

Reporting Requirements

 

Sfoékholders
public
exchanges

Corporate Visibilipy
advertising value
stock and company analysis
volume publicity

 

Obtainment of Funds

 

stock sales

credit rating

access to capital markets
company prestige

price publicity

(Cluster not Named)
merger (ability to acquire)
spread: between bid and ask

 

1C1uster not Named)
merger (attractiveness of your
firm)

 

(Cluster not Named)
loan value of stock

 

 

201

Table B-81

CLUSTERING OF THE LISTING EXPECTATION VARIABLES:
LISTED NEW YORK COMPANIES

 

 

Cluster Number

Cluster Name (Items Included)

 

Exchange Effects

 

ownership base
transactions

stockholder interest 6
effect on share price '

Loss of OTC Market Support 3
loss of sales support V
loan value of stock

 

Reporting Requirements
stockholders
public
exchanges

Corporate Visibilipy
advertising value
company prestige
analysis of stock and company
marketability

Obtainment of Funds

 

credit rating
access to capital markets

Newspaper Publicipy

 

price publicity
volume publicity
merger (to acquire)

(Cluster not Named)

 

price volatility of stock
spread between bid and ask

(Cluster not Named)

 

stock sales
merger (attractiveness of your
firm)

 

A FACTOR ANALYSIS OF THE LISTING EXPECTATION VARIABLES:

202

Table B-82

UNLISTED NEW YORK COMPANIES

 

 

 

Factor Factor Name Percent Explained
Number (Items Included) by Factor
1 Exchange Effects 21.3
ownership base
marketability of stock
transactions

2 Loss of OTC Market Support 8.4
loss ofisales support
price volatility of stock

3 Raporting Requirements 10.4
stockholders
public
exchanges

4 Corporate Visibility 8.5
merger (attractiveness of your

firm)

advertising value

5 Obtainment of Funds 16.3
credit rating
access to capital markets

6 Utilipy of Stock 8.3
loan value of stock

7 Share Price Effects 6.4

 

 

 

 

 

 

 

effect on share price
spread: between bid and ask

Total

79.6

 

 

203
Table B-83

A FACTOR ANALYSIS OF THE LISTING EXPECTATION VARIABLES:
LISTED NEW YORK COMPANIES

 

 

 

 

Factor Factor Name Percent Explained
Number (Items Included) by Factor
1 Exchange Effects 11.7
ownership base
transactions
2 Loss of OTC Market Support 7.0

 

loss of sales support
loan value of stock

 

3 Rgporting Requirements 13.5
stockholders
public
exchanges

4 Cogporate Visibility 12.9

 

advertising value
company prestige
analysis of stock and company

5 Obtainment of Funds 7.8
credit rating
access to capital markets

 

6 Newspaper Publicipyf 11.2
price publicity
volume publicity

 

7 (Factor not Named) 8.8
stock saies
merger (attractiveness of your
firm)

 

Total 72.9

 

qualms”

204

Table B-84

CLUSTERING OF THE PROFESSIONAL OPINION VARIABLES:
UNLISTED NEW YORK COMPANIES

 

 

 

Cluster
Number Opinions of:
1 Company Officers
Board of Directors
Stockholders
2 Over-the-Counter Dealers
Investment Bankers
Institutional Investors
Your Own Opinion
3 Legal Counsel

 

Table B-85

CLUSTERING OF THE PROFESSIONAL OPINION VARIABLES:
LISTED NEW YORK COMPANIES

 

 

 

Cluster
Number Opinions of:
1 Company Officers
Board of Directors
Investment Bankers
Stockholders
Legal Counsel
2 Over-the-Counter Dealers
3 Institutional Investors

Your Own Opinion

 

205

Table B-86

A FACTOR ANALYSIS OF THE PROFESSIONAL OPINION VARIABLES:
UNLISTED NEW YORK COMPANIES

 

 

 

Factor Percent Explained
Number by Factor
1 Board of Directors 30.8
Stockholders
2 Institutional Investors 23.0

Your Own Opinion

3 Legal Counsel 15.8

Total 69.6

 

Table B-87

A FACTOR ANALYSIS OF THE PROFESSIONAL OPINION VARIABLES:
LISTED NEW YORK COMPANIES

 

 

 

Factor Percent Explained
Number by Factor
1 Board of Directors 23.6
Stockholders
2 Institutional Investors 21.7

Your Own Opinion

3 Over-the-Counter Dealers 15.7

Total 61.0

 

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‘ "M‘ . I ' '

 

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