Demutualization of Stock Exchanges: An Analysis of its Benefits
Date
2012-10
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
HAJEE MOHAMMOD DANESH SCIENCE AND TECHNOLOGY UNIVERSITY, DINAJPUR
Abstract
Stock exchanges turned from mutual and public ownership to private, shareholder-value
driven ownership; grew in size, reach, breadth of product portfolio and concentration;
formed a cobweb-like network, acquired each other and attracted foreign direct
investment — just like any other company. The focus of this study is to evaluate the
benefit of demutualization and impact on the overall performance of stock exchanges.
This study distinguishes in particular mutual versus demutualized ownership. London
Stock Exchange, Hong Kong Stock Exchange and New York Stock Exchange are chosen
as study cases, because London Stock Exchange and New York stock exchange are one
of the world leading stock exchanges and Hong Kong Stock Exchange is definitely one
of the most important emerging market stock exchanges. In this paper the simple
descriptive statistics and Wilcoxon ranking is used as the method of analysis, in
association to a profound review of the literature in this area. The data illuminate the fact
that demutualized stock exchanges hold a stronger operating performance and a better
performance in term of shareholder’s return than mutual exchanges.
Description
Stock exchanges are pillars of a nation’s economy. A stock exchange is essentially an
organized market where securities listed on it are traded. The stock exchange provides of
price discovery and liquidity to the securities listed on it. The stock market is expected to
accelerate economic growth by providing a boost to domestic savings and increasing the
quantity and the quality of investment (Singh, 1997). The stock market is expected to
encourage savings by providing individuals with an additional financial instrument that
may better meet their risk preferences and liquidity needs. Better savings mobilization
may increase the savings rate (Levine and Zervos, 1998). Stock markets also provide an
avenue for growing companies to raise capital at lower cost. In addition, companies in
countries with developed stock markets are less dependent on bank financing, which can
reduce the risk of a credit crunch. Stock exchanges offer a host of services to listing
companies like liquidity, execution of services, signaling function for listed companies,
monitoring of trading to prevent manipulation and insider trading, standard rules to
reduce transaction costs, and clearing of buy and order transactions.
Keywords
Stock Exchange,, Demutualization,, Ratio, Performance, Mutual, Organizational Structure,, Profit