Capital Markets

The Tweed Jacket Brigade

Stock exchanges enlist friendly academics in their battle for listings.
Jason KaraianDecember 10, 2007

At best, the rhetoric of the major players involved in the consolidation of the world’s stock exchanges could be described as coarse. The squabbling between financial centres is now reaching new levels of hostility: they have unleashed the professors.

Over a 24-hour period in mid-November, Deutsche Börse and the London Stock Exchange each published academic research that extolled the unique, unrivalled virtues of their respective business models.

On Frankfurt’s side are Christoph Kaserer from the Technical University of Munich and Dirk Schiereck from the European Business School. In “Going Public and Being Public: A Global Comparison of the Impact of the Listing Decision on the Cost of Capital,” the professors develop a scorecard to gauge the attractiveness of listing on six major exchanges. Looking at 2,200 companies that listed over the past eight years, the academics combine eight variables — listing fees, liquidity, volatility and the like — to arrive at an overall score, ranking the exchanges accordingly. In terms of both its main and junior markets, Deutsche Börse tops the list.

In London, Sridhar Arcot, Julia Black and Geoffrey Owen from the London School of Economics offer a different view. In “From Local to Global: The Rise of AIM as a Stock Market for Growing Companies,” the researchers profile the London exchange’s junior market (the Alternative Investment Market), where young, growing companies have raised more than £13 billion (€18 billion) in the first nine months of 2007, despite the exchange ranking second from bottom in the German academics’ analysis. With more than 300 listed companies based outside the UK, AIM’s international “momentum,” the professors note, constitutes a “powerful competitive advantage” over the junior markets run by London’s rivals, where only a handful of foreign firms are listed.

NYSE Euronext is planning to launch an alternative exchange along AIM lines in 2008. Presumably, it has already engaged the Sorbonne to produce flattering research about it.