Competition for Listings
AbstractWe develop a model in which two profit maximizing exchanges compete for IPO listings. They choose the listing fees paid by firms wishing to go public and control the trading costs incurred by investors. All firms prefer lower costs, however firms differ in how they value a decrease in trading costs. Hence, in equilibrium, competing exchanges obtain positive expected profits by charging different trading fees 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. In some cases, welfare is larger with a monopolist exchange than with oligopolist exchanges.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2222.
Date of creation: Aug 1999
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- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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