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Growth strategies and value creation: what works best for stock exchanges?

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  • Hasan, Iftekhar
  • Schmiedel, Heiko
  • Song, Liang

Abstract

In recent years, demutualized stock exchanges have been increasingly engaging in M&A and alliance activities. To examine the effect of these growth strategies on exchange shareholders’ value creation, we focus on 14 public stock exchanges and investigate their short-run share price responses to the formation of 110 M&As and alliances all over the world spanning the period 2000-2008. Our findings show that the average stock price responses for M&As and alliances are positive. M&As create more value than alliances. For alliances, joint ventures generate more value than non-equity alliances. More value accrues when the integration is horizontal (cross-border) than when it is vertical (domestic). Additionally, there is evidence of learning-by-doing effects in stock exchange integration activities. Finally, we find that the better the shareholder protection, accounting standards and capital market development in the partner exchange’s country, the higher the merger and alliance premium for our sample exchange. These patterns are consistent when we examine the exchanges’ long-run performance. JEL Classification: L22, G32, D23

Suggested Citation

  • Hasan, Iftekhar & Schmiedel, Heiko & Song, Liang, 2010. "Growth strategies and value creation: what works best for stock exchanges?," Working Paper Series 1201, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20101201
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    References listed on IDEAS

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    Cited by:

    1. Amélie Charles & Olivier Darné & Jae H. Kim & Etienne Redor, 2016. "Stock Exchange Mergers and Market," Post-Print hal-01238707, HAL.
    2. Li, Shaofang & Marinč, Matej, 2016. "Competition in the clearing and settlement industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 40(C), pages 134-162.
    3. repec:eee:intfin:v:53:y:2018:i:c:p:17-49 is not listed on IDEAS
    4. Yang, Ann Shawing & Pangastuti, Airin, 2016. "Stock market efficiency and liquidity: The Indonesia Stock Exchange merger," Research in International Business and Finance, Elsevier, vol. 36(C), pages 28-40.
    5. B.T. Katangodage & A.W. Wijeratne, 2016. "Value-weighted price return index for plantation sector of Colombo Stock Exchange of Sri Lanka," International Journal of Agricultural Resources, Governance and Ecology, Inderscience Enterprises Ltd, vol. 12(1), pages 27-52.

    More about this item

    Keywords

    exchanges; joint ventures; mergers and acquisitions; network organization; strategic alliances;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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