Growth Strategies and Value Creation: What Works Best for Stock Exchanges?

Financial Review 01/2010; 47(2/2010). DOI: 10.2139/ssrn.1559888
Source: RePEc


In recent years, demutualized stock exchanges have increasingly engaged in M&A and alliance activities. To shed light on this topic, we investigate short-run share price responses to the formation of 110 stock exchange M&As and alliances in the period 2000–2008. Our findings show that the average stock-price responses to a stock-exchange M&A or alliance is positive. Stock exchange M&As create more value than alliances. For alliances, joint ventures generate more value than non-equity alliances. More value is created when the integration is horizontal and cross-border than when it is vertical and domestic. Evidence is also found for learning-by-doing effects in stock exchange integration activities. Finally, we find that the better the shareholder protection, accounting standards and degree of capital market development in the partnering exchange’s country, the higher the merger and alliance premium. These patterns also obtain when we examine long-run performance measures such as the three-year buy-and-hold abnormal return, change in ROA (ROE), change in liquidity, and change in market capitalization of IPO between years t-2 and t+2.

Download full-text


Available from: Iftekhar Hasan
  • [Show abstract] [Hide abstract]
    ABSTRACT: Purpose ‐ This paper contains an empirical analysis of determinants of international integration projects over the time period 1995-2010. After a broad discussion of the existent literature, the investigation combines a large number of potentially relevant determinants for the explanation of whether stock exchanges are participating in formal integration projects. The paper aims to discuss these issues. Design/methodology/approach ‐ The methodology is based on multistage statistical data analysis, using correlation and cluster analyses to investigate the presence of integration trend between existing stock exchange projects, while multivariable logit regression examines the determinants of stock exchange integration. Findings ‐ The paper confirms empirically the set of drivers of financial integration. Moreover, the paper provides quantitative estimations of probability of stock exchange integration estimated for different explanatory variables. The paper demonstrates that financial harmonization, cross-membership-agreements, for-profit corporate structure, trading engine and regional integration are important drivers of stock exchange integration. By contrast, high size of stock exchange market has negative impact on the likelihood of successful merger. This result is, especially, important in terms of financial regulation. Practical implications ‐ Results highlight the importance of stock exchange market in terms of exposure to systemic shocks and the linkages with the overall size of the economy. Originality/value ‐ The paper contributes to the existing literature and extends the analysis of determinants of stock exchange integration. In particular, the existence of de jure stock market integration projects suggests to design a special regulatory framework in order to benefit the important consequences of the integration phenomenon and to decrease the risk of financial contagion.
    No preview · Article · Mar 2014 · Journal of Economic Studies
  • [Show abstract] [Hide abstract]
    ABSTRACT: This study investigates the market liquidity and efficiency of the merger between the Surabaya Stock Exchange and the Jakarta Stock Exchange into the Indonesia Stock Exchange (IDX). Efficiency theory and scale economies are applied to identify the liquidity and efficiency levels of firms. Results indicate that large market capitalization companies and the non-financial sector achieved greater market efficiency than their counterparts. Despite foreign ownership reduces market efficiency for large market capitalization firms, small market capitalization firms increase market efficiency via merger. The IDX composite index demonstrated weak-form efficiency, with LQ45 index returns explaining up to 29.3% of the price movements and up to 8.5% of the IDX returns.
    No preview · Article · Sep 2015 · Research in International Business and Finance
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: This article empirically analyzes the competitive landscape within the clearing and settlement industry. Using panel data for forty-six clearing and settlement institutions from twenty-three countries, we confirm that competition between clearing and settlement institutions is limited. We show that competition increases with institutional size, with technological development, and after horizontal mergers, but not after vertical mergers. In addition, we find that competition in clearing and settlement is higher in the US than in Europe and was higher during the global financial crisis compared to normal times.
    Full-text · Article · Sep 2015 · Journal of International Financial Markets Institutions and Money