The impact of specialist firm acquisitions on market quality

Acquisitions among New York Stock Exchange specialist firms can increase specialist firm size, capitalization, and market concentration, and thereby affect the market quality of the stocks they trade. We find that while traded stocks show significant improvement in several market quality measures following acquisitions, similar changes are evident in matched control stocks not involved in acquisitions. We conclude that specialist firm acquisitions either do not improve market quality, or improve market quality, but competitive and other pressures (resulting partly from the acquisitions themselves) force improvements in market quality for control stocks also. Either interpretation implies that specialist acquisitions have not had deleterious effects on market quality. (C) 2002 Elsevier Science B.V. All rights reserved.