Download This PaperRegulation takes a back seat to business concerns: international evidence from stock exchange demutualization
65 Pages Posted: 23 Feb 2020 Last revised: 28 Nov 2022
Date Written: July 16, 2023
Abstract
In recent decades, increasing globalization and rapid technological development have caused many stock exchanges to change their ownership structure from mutually owned (broker/dealer-owned) to demutualized (for-profit, shareholder-owned). This study investigates whether increased forprofit focus weakens exchanges' monitoring incentives. Using multiple financial reporting quality metrics to capture monitoring efforts, we find that monitoring of listed firms declines postdemutualization. Additional tests confirm that our findings are attributable to changes in oversight of the firms listed on demutualized exchanges (either by the exchange or the local regulator). Moreover, these findings only hold among weak regulatory regimes, emphasizing the significance of strong, independent, country-level regulatory organizations in monitoring stock exchanges. Data Availability: Data are available from public sources cited in the text.
Keywords: stock exchanges, exchange oversight, exchange regulation, demutualization, reporting quality JEL Codes: M4
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