Demutualization of Stock Exchanges: An Analysis of its Benefits

Abstract

Stock exchanges turned from mutual and public ownership to private, shareholder-value driven ownership; grew in size, reach, breadth of product portfolio and concentration; formed a cobweb-like network, acquired each other and attracted foreign direct investment — just like any other company. The focus of this study is to evaluate the benefit of demutualization and impact on the overall performance of stock exchanges. This study distinguishes in particular mutual versus demutualized ownership. London Stock Exchange, Hong Kong Stock Exchange and New York Stock Exchange are chosen as study cases, because London Stock Exchange and New York stock exchange are one of the world leading stock exchanges and Hong Kong Stock Exchange is definitely one of the most important emerging market stock exchanges. In this paper the simple descriptive statistics and Wilcoxon ranking is used as the method of analysis, in association to a profound review of the literature in this area. The data illuminate the fact that demutualized stock exchanges hold a stronger operating performance and a better performance in term of shareholder’s return than mutual exchanges.