A global trend towards stock exchanges corporate governance raises the important question of whether market quality is, in fact improved after stock exchange demutualization. Utilizing data on 5 out of 8 demutualized stock exchanges during the period 2007-2013, when competition reaches its highest point, this paper compares liquidity, stability and efficiency of similar stocks in a demutualized and a mutualized stock exchange. After controlling for differences in stock exchanges’ characteristics and economic factors across samples, results indicate that spreads and volatility decrease after stock exchange demutualization and prices become more informative. This improvement is more observable in a stock exchange with relatively high size. To conclude, stock exchange corporate governance matters as market quality is enhanced in a stock exchange which converts to a demutualized structure.

Discussant: Lucyna Gornicka (University of Amsterdam)