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Competition for Listings

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Author Info
Foucault, Thierry
Parlour, Christine A

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Abstract

We 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2222.

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Date of creation: Aug 1999
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Handle: RePEc:cpr:ceprdp:2222

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Related research
Keywords: Competition; Exchanges Rates; Listings; Regulation; Trading Technology;

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Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Patrick BOLTON & Ernst-Ludwig VON THADDEN, 1996. "Blocks, Liquidity, and Corporate Control," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9619, Université de Lausanne, Faculté des HEC, DEEP.
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  2. Kandel, Shmuel & Sarig, Oded & Wohl, Avi, 1999. "The Demand for Stocks: An Analysis of IPO Auctions," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 12(2), pages 227-47.
  3. 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. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. Harris, L., 1990. "Liquidity , Trading Rules and Electronic Trading Systems ," Papers 91-8, Southern California - School of Business Administration.
  6. Huddart, Steven & Hughes, John S. & Brunnermeier, Markus, 1999. "Disclosure requirements and stock exchange listing choice in an international context," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 237-269, January. [Downloadable!] (restricted)
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  7. 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.
  8. 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. [Downloadable!] (restricted)
  9. Madhavan, Ananth, 1992. " Trading Mechanisms in Securities Markets," Journal of Finance, American Finance Association, vol. 47(2), pages 607-41, June. [Downloadable!] (restricted)
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  10. 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.
  11. Jim Angel & Reena Aggarwal, . "Optimal Listing Strategy: Why Microsoft and Intel Do Not List on the NYSE," Working Papers _007, Georgetown School of Business.
  12. 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. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!] (restricted)
  2. Foucault, Thierry & Gehrig, Thomas, 2006. "Stock Price Informativeness, Cross-Listings and Investment Decisions," CEPR Discussion Papers 5722, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Degryse, H.A. & Achter, M. van & Wuyts, G., 2007. "Dynamic Order Submission Strategies with Competition between a Dealer Market and a Crossing Network," Discussion Paper 2007-017, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
    Other versions:
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