Causes and Effects of Worldwide Demutualization of Financial Exchanges

43 Pages Posted: 16 Jul 2021 Last revised: 23 Jul 2021

See all articles by Chinmay Jain

Chinmay Jain

University of Ontario Institute of Technology

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics

David A. Taylor

University of Memphis - Finance

Date Written: July 14, 2021

Abstract

We examine how the forces of automation, competition, and demutualization are rapidly changing the industrial organization, ownership, and capital structure of the financial exchange industry. We propose the conditions under which demutualization becomes optimal from the perspective of mutually owned exchange owners. We then proceed to build an empirical dataset characterizing the evolution of the leading stock and derivative exchanges around the World along these dimensions. We empirically find that technology driven growth opportunities, product driven growth opportunities and increases in market concentration are the main stimulants for demutualization. These factors remain strongly significant in explaining demutualization after controlling for market capitalization, trading volume and economic freedom environment within the country where the exchange is domiciled. Finally, we analyze the impact of demutualization from the perspectives of other stakeholders in financial markets. Turnover and liquidity for investors improve after demutualization, helping reduce the cost of capital for corporations.

Keywords: Demutualization, Exchanges, Panel data model, Survival analysis

JEL Classification: G32, G34, C23

Suggested Citation

Jain, Chinmay and Jain, Pankaj K. and Taylor, David, Causes and Effects of Worldwide Demutualization of Financial Exchanges (July 14, 2021). Available at SSRN: https://ssrn.com/abstract=3886562 or http://dx.doi.org/10.2139/ssrn.3886562

Chinmay Jain

University of Ontario Institute of Technology ( email )

2000 Simcoe Street North
Oshawa, Ontario L1H 7K4
Canada

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

David Taylor (Contact Author)

University of Memphis - Finance ( email )

United States

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