شبکه ها و یکپارچه سازی بازار حقوق صاحبان سهام : شواهد اروپا

Deregulation, globalization, and technological developments have altered the business strategies of stock exchanges around the world. We investigate whether the adoption of network strategies by stock exchanges creates additional value in the provision of trading services. Using unbalanced panel data from all major European exchanges over the period 1996–2000, we examine the consequences of network cooperation on a number of stock market performance measures. We show that adopting a network strategy is associated with higher market capitalization, lower transaction costs, higher growth, and enhanced international stock market integration.

Stock exchanges have experienced a challenging environment in recent years. Globalization and integration of all types of financial markets, the continuous emergence of innovative technology, new deregulatory initiatives, and the adoption of alternative corporate governance systems are among some of the key issues faced by exchanges around the world. The integration process has increased the popularity of mergers, especially implicit mergers or network deals among exchanges. As companies seek to broaden their shareholder base and raise capital beyond local markets Domowitz et al., 1998, Lee, 1998, Licht, 1998 and Pagano et al., 2001, such implicit mergers1 are often preferred by investors as an alternative to multiple listings across markets. Exchanges also prefer this type of deal, which allows them to avoid direct competition from stronger markets. This type of arrangement is also capable of developing a more competitive environment, where the most efficient exchanges will eventually win the confidence of investors, traders and companies (Cybo-Ottone, Di Noia, & Murgia, 2000). It provides a common trading platform among exchanges that are willing to open up to each others' markets for cross-listing and trading purposes, with ample freedom for brokers and traders to operate across markets. Network arrangements also help in gaining new demand for exchange products, and can bring efficiency gains through economies of scale Economides, 1993, Economides, 1995 and Hasan & Malkamäki, 2001. Shapiro and Varian (1999) point out that computer technology, that is, networks, will tend to dominate the trading business as they provide investors with enhanced options The recent success of EUREX is a good example of how networks can replace a trading floor in another country.2 European exchanges, historically local monopolies, are the most active players in adopting the network or common trading platform. Taking their cue from NASDAQ's proposed and partially implemented global plan to list and trade across markets, the European exchanges have taken the lead in forming and joining in active network cooperation among European markets. In fact, the majority of the 100 executed or potential merger-related deals in the world are in Europe (Cybo-Ottone et al., 2000). There are four interexchange cooperation models that link security markets within and outside European boundaries. While the finance literature is abundant in introducing and describing the potential benefits of network arrangements in terms of increased participation, liquidity, efficiency, and transaction costs, no paper to date discusses the potential consequences of adopting such network cooperation. Cybo-Ottone et al. (2000) provide the first descriptive approach to understanding mergers and cooperation across exchanges, but their study was focused on the factors associated with consolidation efforts. A separate volume of papers has focused on the motives as well as on the consequences of cross-border listings and cross-listed stocks Blass & Yafeh, 2001, Chaplinsky & Ramchand, 2000, Foerster & Karolyi, 1998, Karolyi, 1998 and Pagano et al., 2003. None of these papers, however, deals with issues associated with networks or implicit mergers. In this paper, we attempt to fill this gap in the literature by introducing details on the landscape of network cooperation among exchanges in Europe, and by showing the potential impact of such interexchange cooperative initiatives on the performance, growth, and transaction cost of the sample exchanges.3 Our evidence shows that after controlling for pertinent variables, the network cooperation decision, represented by several alternative network proxy variables, is associated with stock exchange market capitalisation, higher growth, and to a lesser extent, with lower transaction costs. Our paper is organised as follows: Section 2 introduces networks, alliances, and cooperation among European stock exchanges together with a brief literature review. Section 3 introduces the data and descriptive statistics. Section 4 reports the results. Our conclusions are presented in Section 5. 2. Networks, alliances, and cooperation among European stock exchanges Evidence of network externalities can be seen in the types of international alliances and cooperative arrangements that are beginning to emerge between exchanges. The overall goal is to provide investors the opportunity to trade shares of globally listed firms on a continuous 24/7 basis at the lowest possible cost. In this scenario, the implications of electronic trading play a pivotal role. In financial exchange markets, the innovation and implementation of new electronic trading technologies varies considerably by geography, culture, and the organizational structure of the exchanges (Hasan, Malkamaki, & Schmiedel, 2003). For example, there is evidence that North American exchanges operate most efficiently to serve the interests of the marketplace. Europe, however, has been quicker and more ambitious in responding to electronic trading and adopting it to create cooperative market linkages between stock and derivative exchanges (Schmiedel, 2001). Amongst the anticipated benefits of cooperative projects and strategic alliances were extended trading hours, allowing for remote membership, modifying prices, and lowering costs. It is crucial for the success of networked electronic trading platforms that greater efficiency and transparency, faster executions, and lower costs can attract a critical mass of order-flows to generate additional liquidity to the market. The economic theory of network externalities provides a rationale for such cooperation.4 Formally, networks consist of links that connect nodes. In a typical network, the addition of a new consumer (or network node) increases the willingness to pay for network services among all participants. This effect is called network effects or network externalities. Several authors apply the concept of networks to financial intermediation and securities markets. Regarding a financial exchange network, Domowitz (1995) and Domowitz and Steil (1999) state that an exchange or trading system is analogous to a communications network, as the benefit to one trader transacting in a given trading system increases when another trader chooses to transact there as well. Economides (1996) shows two ways in which financial exchange networks have network externalities; first, by matching buys and sells, they generate a composite good, namely, the exchange transaction, and second, network effects can also stem from different vertically related services necessary for a financial transaction, that is, the matching services of brokers. Strong network externalities force exchanges to create formal or informal linkages. The exact design of such interconnections is less important. They are likely to occur in the form of implicit and explicit acquisitions and mergers, strategic alliances, pooling order-flows, or even information sharing agreements as discussed in Domowitz and Steil. Financial exchanges that are less active in forming alliances or linkages are likely to lose competitive ground vis-à-vis their counterparts who do engage in network strategies.

The combined processes of deregulation, globalization, and technological advancement have altered the business strategies of stock exchanges around the world. In this paper, we have investigated whether the adoption of network strategies by European stock exchanges creates additional value in the provision of trading services. Using unbalanced panel data from all major European exchanges over the period 1996–2000, we examined the consequences of network cooperation on a number of performance measures. We showed that adopting a network strategy is associated with higher market capitalization, lower transaction costs, higher growth, and enhanced international integration. Building on the analytical framework of this study, the adoption of network strategies seem to have an important role in shaping the future structure of integrated European equity markets. Further empirical study of the impact of network economics on the exchange industry and financial markets will likely add further insights to the integration process.