Principles of Corporate Finance with Cdrom
Principles of Corporate Finance with Cdrom
| Hi-index | 0.06 |
In the past years equity exchanges have diversified their operations into business areas such as derivatives trading, post-trading services, and software sales. Securities trading and post-trading are subject to economies of scale and scope. The integration of these functions into one institution ensures efficiency by economising on transactions costs. Using balanced panel data from major equity exchanges over the period 2005---2008, we empirically analyse the effects of different business strategies on the costs per trade and the profitability of equity exchanges. The evidence confirms the existence of significant economies of scale. The evidence also shows that vertical integration increases the profitability of exchanges while diversification and horizontal integration reduces their profitability. Naturally, the increasing competition needs to be considered when analysing effects on profitability.