Listing standards : to raise or not to raise?

Abstract

This paper addresses the two opposing strategies adopted by equity exchanges, in competing for listings by domestic companies in the top tier regulated market. The first strategy involves lowering listing standards for increased trading volume, at the expense of reputational capital. Conversely, the second strategy includes raising listing standards to instill confidence in institutional investors and attract bigger-ticket Initial Public Offerings (IPOs). This paper attempts to capture the current level of listing standards adopted by exchanges worldwide by ranking them according to the strictness of their quantitative and qualitative listing requirements. Our study found that internationally recognized exchanges adopt strict listing requirements, demonstrating the greater importance of reputational capital.

To gain further insights of this ranking, a regression test is performed to determine plausible relationship(s) between country development levels and the strictness of listing standards. Our study found that exchanges operating in countries with greater levels of Internet users, adopt higher listing standards.