Demutualization of Stock Exchanges: A Corporate Blessing in Disguise for Stock Market Growth

• Published date: 01 July 2015
• Author: Nadeem Talib,Abdul Wahid Sial,Muhammad Aftab Alam,Fayqa Abdullah Ashkanani
• DOI: http://doi.org/10.1002/jsc.2017
• Date: 01 July 2015

RESEARCH ARTICLE

Strat. Change 24: 389–400 (2015)

Published online in Wiley Online Library

(wileyonlinelibrary.com) DOI: 10.1002/jsc.2017

Copyright © 2015 John Wiley & Sons, Ltd.

Strategic Change: Briengs in Entrepreneurial Finance

Strategic Change

DOI: 10.1002/jsc.2017

Demutualization of Stock Exchanges: A Corporate

Blessing in Disguise for Stock Market Growth

Abdul Wahid Sial

Department of Management Sciences, National University of Modern Languages,

Islamabad, Pakistan

Nadeem Talib

Department of Management Sciences, National University of Modern Languages,

Islamabad,Pakistan

Fayqa Abdullah Ashkanani

Department of Management Sciences, Paris School of Business, Doha, State ofQatar

Muhammad Aftab Alam

Department of Management Sciences, National University of Modern Languages,

Islamabad,Pakistan

Changes in ownership, governance, and objectives of stock exchanges signicantly

impact on stock market growth indicators such as number of listed companies,

number of transactions in equity market, stock index, and market capitalization.

A stock exchange is a place that facilitates brokers and traders to buy and sell

stocks, bonds, and other securities. It also provides opportunities for raising capital

through initial public oerings and secondary markets for trading mature securi-

ties. A stock exchange is not only a market facilitator for investors but, with the

collaboration of the securities exchange commission of a country, also plays a vital

role in regulating authorities to keep a check on insider trading, window dressing,

and market abuse. Typically, stock exchanges were mutual organizations instead

of prot-making organizations. Aggarwal & Dahiya (2002) dened a mutual

organization as the type of organization that guarantees the protection of monop-

oly power and charges rent to brokers. Traditionally, stock exchanges were con-

sidered as ‘the club of the brokers’ and only provided services to brokers who were

assumed to be associates or members of mutual stock exchanges and, hence,

enjoyed the right of ownership and the power of decision making in the mutual

governance structure of stock exchanges (Akhtar, 2002). In such a structure, one

member had one vote and the values of the stock exchange were enhanced by

limiting the general public’s access. But globalization – due to advances in technology,

the spread of information, and modern ways of stock trading – led to more-integrated

Demutualization, owing to a

change in ownership from

guarantee limited to public

limited, leads to better stock

market growth. It proffers superior

governance by keeping in view

the interests of all stakeholders as

well as shareholders, leading to

stock market growth and stability.

Changes in objectives of stock

exchanges (from not-for-prot to

prot-oriented organizations) also

lead to better growth decisions.

Changes in governance structures

of stock exchanges (from

autocratic to democratic) lead to

better stock market growth. This

study nds democratic governance

structures to be more rewarding

for stock market growth.