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Competition for Listings

Author

Listed:
  • Thierry Foucault

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Christine A. Parlour

    (GSIA, Carnegie Mellon University - CMU - Carnegie Mellon University [Pittsburgh])

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 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 di#erent 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.

Suggested Citation

  • Thierry Foucault & Christine A. Parlour, 2011. "Competition for Listings," Working Papers hal-00599911, HAL.
    • Handle: RePEc:hal:wpaper:hal-00599911
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    JEL classification:

    • 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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