The role of accounting information in security exchange delisting

Our paper looks at the considerations used by the American Stock Exchange (AMEX) in its decision to remove one of its listed firms. The involuntary delisting process is examined using a sample of 150 firms delisted over the 1981 to 1992 period. The first part of our study compares the AMEX numerical guidelines to firms' financial accounting numbers prior to delisting. The next part identifies additional factors used by the AMEX from the Delisting Applications filed with the United States Securities and Exchange Commission (SEC) upon a firm's removal. The third part investigates the importance of these and other factors by estimating a logistic regression model using a matching sample of continuously listed firms. The results indicate that audit opinions, Chapter 11 filings, firms' trading volume, and one-year stock return prior to delisting are important factors in the delisting decision. The AMEX financial guidelines are also a significant factor in the logit model. However, in many cases the AMEX did not follow the criteria outlined in these guidelines, suggesting that accounting numbers play a role secondary to that of other factors cited in the Delisting Applications. Finally, shareholder lawsuits plus SEC investigations, which cause adverse publicity and can harm the AMEX's reputational capital, was also found to be a significant variable in the logit regression.