Competition for Listings
Résumé
We develop a model in which two profit maximizing exchanges compete for IPO listings. They choose the listing fees paid by entrepreneurs wishing to go public and control the trading costs incurred by investors. All entrepreneurs prefer lower costs, however entrepreneurs differ in how they value a decrease in trading costs. Hence, in equilibrium, competing exchanges obtain positive expected profits by offering different execution costs and different listing fees. As a result, firms that list on different exchanges have di#erent characteristics. The model has testable implications for the cross--sectional characteristics of IPOs on different quality exchanges and the relationship between the level of trading costs and listing fees. We also find that competition does not guarantee that exchanges choose welfare maximizing trading rules.