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Competition for Listings

  • Thierry Foucault

    ()

    (HEC School of Management and CEPR)

  • Christine A. Parlour

    ()

    (Carnegie Mellon University)

We develop a model in which stock 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 trading costs but differ in how much they value a decrease in trading costs. Hence, in equilibrium, competing exchanges can obtain positive expected profits by choosing different trading costs and different listing fees. The model has testable implications on the cross-sectional characteristics of IPOs on different-quality exchanges and the relationship between the level of trading costs and listing fees.

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Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 35 (2004)
Issue (Month): 2 (Summer)
Pages: 329-355

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Handle: RePEc:rje:randje:v:35:y:2004:2:p:329-355
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  1. 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.
  2. 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.
  3. Madhavan, Ananth, 1992. " Trading Mechanisms in Securities Markets," Journal of Finance, American Finance Association, vol. 47(2), pages 607-41, June.
  4. 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.
  5. Harris, L., 1990. "Liquidity , Trading Rules and Electronic Trading Systems ," Papers 91-8, Southern California - School of Business Administration.
  6. 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.
  7. Jim Angel & Reena Aggarwal, . "Optimal Listing Strategy: Why Microsoft and Intel Do Not List on the NYSE," Working Papers _007, Georgetown School of Business.
  8. Ellingsen, Tore & Rydqvist, Kristian, 1997. "The Stock Market as a Screening Device and the Decision to Go Public," SSE/EFI Working Paper Series in Economics and Finance 174, Stockholm School of Economics.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
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