Does Demutualization Enhance Financial Performance of Stock Exchanges in Developing and Emerging Economies?

• Author: Abdul Wahid Sial,Alyas Qadeer Tahir
• Date: 01 November 2013
• Published date: 01 November 2013
• DOI: http://doi.org/10.1002/jsc.1951

Strat. Change 22: 461–469 (2013)

Published online in Wiley Online Library

(wileyonlinelibrary.com) DOI: 10.1002/jsc.1951 RESEARCH ARTICLE

Copyright © 2013 John Wiley & Sons, Ltd.

Strategic Change: Brie ngs in Entrepreneurial Finance

Strategic Change

DOI: 10.1002/jsc.1951

Does Demutualization Enhance Financial

Performance of Stock Exchanges in Developing

and Emerging Economies?1

Alyas Qadeer Tahir

Visiting Faculty of Management Sciences, National University of Modern Languages, Islamabad,

Pakistan

Abdul Wahid Sial

Business Administration in Department of Management Sciences, Islamabad, Pakistan

Introduction

 ere have been rapid changes in business policies and functioning structure due

to globalization. Corporations can easily run the operation of their branches

around the world e ectively and e ciently from a single o ce location. Competi-

tion among corporations is increasing day by day due to the expansion of markets

and interaction among investors from around the world. Globalization eventually

results in expanded business due to mergers and acquisitions.

Traditionally, stock exchanges all over the world were run as mutual or mem-

ber-owned organizations, raising capital from members and providing them with

services. Mutual or member-owned stock exchanges are those exchanges which

collect funds from members and provide services to them.  e advancement of

information technology in capital markets — for example, the introduction of the

computerized trading platform, the joint clearing system, and the evolution of the

shares’ bank Central Depository Company (CDC) in Pakistan o ering online

trading to investors while staying at home — meant that even the physical exis-

tence of stock exchanges became questionable.

At the start of the 1990s, most stock exchanges around the world initiated steps

toward demutualization, due to advances in information technology and changes in

the pattern of trading of stock markets. Researchers have examined the reasons or

factors behind demutualization, and are agreed on two main factors: globalization

and information technology (Williamson, 1999; Akhtar, 2002; Serifsoy, 2005).

Changes in ownership and

governance strategies in the

corporate sector of developing

economies have productive results

in the  nancial performance of

organizations.

Strategic changes in corporate

governance and ownership are

more acceptable in developing

and emerging economies than

developed economies.

A democratic corporate

governance structure gives priority

to wealth maximization of general

shareholders.

Changes in stock exchange ownership and governance structures lead to better

 nancial performance indicators, except for  xed assets utilization in developing

and emerging economies.

1 JEL classi cation code: G30.