Strategic change and corporate governance: Evidence from the stock exchange industry

The literature suggests that demutualization improves financial performance, but most of these studies do not consider the corporate governance (CG) dimension to better understand this positive impact of demutualization. For a representative sample of global stock exchanges over a 21-year period, we examine the short and long term effects of demutualization on their financial performance. Unlike previous researchers, we also study whether the CG strategy of exchanges following demutualization affects their financial performance. Our major results indicate benefits from demutualization in the long term, and we find that improved performance is boosted by major restructuring in CG, when boards evolve to have fewer members but more specialized directors. Our results shed light on how demutualization strategy brings efficiencies by identifying attributes of corporate variables that explain how performance improved. This study provides guidance to exchanges considering demutualization. Results may also apply to firms facing major changes in their business environments.