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Competition for Listings

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  • Thierry Foucault
  • Christine a Parlour

Abstract

We develop a model in which two profit maximizing exchanges compete for IPO listings. They choose the listing fees paid by entrepreneurs wishing to go public and control the trading costs incurred by investors. All entrepreneurs prefer lower costs, however entrepreneurs differ in how much they value a decrease in trading costs. Hence, in equilibrium, competing exchanges obtain positive expected profits by offering different execution costs and different listing fees. As a result, firms that list on different exchanges have different characteristics. The model has testable implications for the cross--sectional characteristics of IPOs on different quality exchanges and the relationship between the level of trading costs and listing fees. We also find that competition does not guarantee that exchanges choose welfare maximizing trading rules.

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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2000-E11.

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Handle: RePEc:cmu:gsiawp:362

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Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
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  1. Patrick Bolton & Ernst-Ludwig von Thadden, 1998. "Blocks, Liquidity, and Corporate Control," Journal of Finance, American Finance Association, vol. 53(1), pages 1-25, 02.
  2. Arnold R. Cowan & Richard B. Carter & Frederick H. Dark & Ajai K. Singh, 1992. "Explaining the NYSE Listing Choices of NASDAQ Firms," Financial Management, Financial Management Association, vol. 21(4), Winter.
  3. Shane A. Corwin & Jeffrey H. Harris, 2001. "The Initial Listing Decisions of Firms that Go Public," Financial Management, Financial Management Association, vol. 30(1), Spring.
  4. Madhavan, Ananth, 1992. " Trading Mechanisms in Securities Markets," Journal of Finance, American Finance Association, vol. 47(2), pages 607-41, June.
  5. Hasbrouck, Joel, 1995. " One Security, Many Markets: Determining the Contributions to Price Discovery," Journal of Finance, American Finance Association, vol. 50(4), pages 1175-99, September.
  6. Brennan, M. J. & Franks, J., 1997. "Underpricing, ownership and control in initial public offerings of equity securities in the UK," Journal of Financial Economics, Elsevier, vol. 45(3), pages 391-413, September.
  7. Kandel, Shmuel & Sarig, Oded & Wohl, Avi, 1999. "The Demand for Stocks: An Analysis of IPO Auctions," Review of Financial Studies, Society for Financial Studies, vol. 12(2), pages 227-47.
  8. Chordia, Tarun & Subrahmanyam, Avanidhar, 1995. "Market Making, the Tick Size, and Payment-for-Order Flow: Theory and Evidence," The Journal of Business, University of Chicago Press, vol. 68(4), pages 543-75, October.
  9. Jim Angel & Reena Aggarwal, . "Optimal Listing Strategy: Why Microsoft and Intel Do Not List on the NYSE," Working Papers _007, Georgetown School of Business.
  10. Harris, L., 1990. "Liquidity , Trading Rules and Electronic Trading Systems ," Papers 91-8, Southern California - School of Business Administration.
  11. Ellingsen, Tore & Rydqvist, Kristian, 1997. "The Stock Market as a Screening Device and the Decision to Go Public," Working Paper Series in Economics and Finance 174, Stockholm School of Economics.
  12. John S. Hughes & Steven Huddart & Markus K Brunnermeier, 1998. "Disclosure Requirements and Stock Exchange Listing Choice in an International Context," FMG Discussion Papers dp282, Financial Markets Group.
  13. Huang, Roger D. & Stoll, Hans R., 1996. "Dealer versus auction markets: A paired comparison of execution costs on NASDAQ and the NYSE," Journal of Financial Economics, Elsevier, vol. 41(3), pages 313-357, July.
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Cited by:
  1. Emiliano Pagnotta & Thomas Philippon, 2011. "Competing on Speed," NBER Working Papers 17652, National Bureau of Economic Research, Inc.
  2. Igal Hendel & Aviv Nevo & François Ortalo-Magné, 2009. "The Relative Performance of Real Estate Marketing Platforms: MLS versus FSBOMadison.com," American Economic Review, American Economic Association, vol. 99(5), pages 1878-98, December.
  3. Degryse, H.A. & Achter, M. van & Wuyts, G., 2012. "Internalization, Clearing and Settlement, and Liquidity," Discussion Paper 2012-002, Tilburg University, Center for Economic Research.
  4. Juranek, Steffen & Walz, Uwe, 2010. "Vertical integration, competition, and financial exchanges: Is there grain in the silo?," CFS Working Paper Series 2010/22, Center for Financial Studies (CFS).
  5. Thierry Foucault, 2006. "Liquidité, coût du capital et organisation de la négociation des valeurs boursières," Revue d'Économie Financière, Programme National Persée, vol. 82(1), pages 123-138.
  6. Jérémy Ducros & Angelo Riva, 2014. "The Lyon Stock Exchange: A Struggle for Survival (1866-1914)," PSE Working Papers halshs-00960528, HAL.
  7. Joyce Hsieh & Chien-Chung Nieh, 2010. "An overview of Asian equity markets," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 24(2), pages 19-51, November.
  8. Thierry Foucault, 2006. "Liquidity, cost of capital and the organization of trading in stock markets," Revue d'Économie Financière, Programme National Persée, vol. 82(1), pages 113-123.
  9. Felix Treptow & Stefan Wagner, 2005. "Stock Exchanges and Issuers: A Changing Relationship," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 74(4), pages 125-139.
  10. Cecilia Caglio & Stewart Mayhew, 2012. "Equity trading and the allocation of market data revenue," Finance and Economics Discussion Series 2012-65, Board of Governors of the Federal Reserve System (U.S.).
  11. Steen Thomsen & Frederik Vinten, 2014. "Delistings and the costs of governance: a study of European stock exchanges 1996–2004," Journal of Management and Governance, Springer, vol. 18(3), pages 793-833, August.

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