Does Demutualization Spur Liquidity?



Demutualization, Liquidity, Turnover, Amivest ratio, Bid-ask spread


Purpose: The literature on demutualization is confined to efficiency and social welfare issues. Little empirical literature exists on the effect of demutualization on listed firms. This study examines the impact of demutualization on the liquidity of listed firms’ stocks.

Methodology: It empirically investigates how the liquidity of listed firms’ stocks is affected by demutualization. Analyzing data of 137 non-financial firms listed on the Pakistan Stock Exchange for 2005 to 2017, we employ fixed effect regression to test the hypotheses.

Findings: We find that demutualization has significantly improved liquidity. We analyze all three dimensions of liquidity that are the trading activity, market impact, and transaction cost. We find that demutualization increases trading activity, improve market depth, and has reduced the transaction cost. 

Implications: Our findings suggest that demutualization is beneficial not only for listed firms but also for its shareholders as all three dimensions of liquidity are improved by demutualization. Stock exchanges that are not demutualized and are facing liquidity problem, can be improved by changing its structure from mutual to demutualized.

Originality: Prior literature focuses on the impact of demutualization on the stock market or social welfare. There is scares research on the effect of demutualization of the listed firm. This study fills this gap by analyzing the impact of demutualization on listed firms' liquidity in a developing economy, such as Pakistan.


Download data is not yet available.

Aggarwal, R. (2002). Demutualization and corporate governance of stock exchanges.

Aggarwal, R., & Dahiya, S. (2006). Demutualization and public offerings of financial exchanges. Journal of Applied Corporate Finance, 18(3), 96-106.

Alves, H., Canadas, N., & Rodrigues, A. M. (2015). Determinants of Share Price and Share Liquidity: An Analysis Using a SEM Model. Procedia Economics and Finance, 25, 318-331.

Amihud, Y., & Mendelson, H. (1986). Liquidity and stock returns. Financial Analysts Journal, 42(3), 43-48.

Amihud, Y., Mendelson, H., & Lauterbach, B. (1997). Market microstructure and securities values: Evidence from the Tel Aviv Stock Exchange. Journal of financial Economics, 45(3), 365-390.

Angel, J. J. (2003). Discussion of “Stock exchange governance and market quality” by Krishnamurti, Sequeira, and Fangjian. Journal of banking & finance, 27(9), 1879-1881.

Arnold, T., Hersch, P., Mulherin, J. H., & Netter, J. (1999). Merging markets. The Journal of finance, 54(3), 1083-1107.

Azzam, I. (2010). Stock exchange demutualization and performance. Global Finance Journal, 21(2), 211-222.

Ben Slimane, F. (2012). Stock exchange consolidation and return volatility. Managerial Finance, 38(6), 606-627.

Ben Slimane, F., & Padilla Angulo, L. (2017). The impact of demutualization on stock exchanges’ financial performance: the moderating role of corporate governance practices. Retrieved from

Berkman, H., & Eleswarapu, V. R. (1998). Short-term traders and liquidity:: a test using Bombay Stock Exchange data. Journal of financial Economics, 47(3), 339-355.

Bryant, H. L., & Haigh*, M. S. (2004). Bid–ask spreads in commodity futures markets. Applied Financial Economics, 14(13), 923-936.

Cooper, S. K., Groth, J. C., & Avera, W. E. (1985). Liquidity, exchange listing, and common stock performance. Journal of Economics and Business, 37(1), 19-33.

Cybo-Ottone, A., Di Noia, C., & Murgia, M. (2000). Recent development in the structure of securities markets. Brookings-Wharton papers on financial services, 2000(1), 223-273.

Datar, V. T., Naik, N. Y., & Radcliffe, R. (1998). Liquidity and stock returns: An alternative test. Journal of Financial Markets, 1(2), 203-219.

Economist. (2006, 27 May). Special Report on Financial Exchanges. Battle of the bourses., 65–67.

Hart, O., & Moore, J. (1996). The governance of exchanges: members' cooperatives versus outside ownership. Oxford review of economic policy, 12(4), 53-69.

Hasbrouck, J. (2004). Liquidity in the futures pits: Inferring market dynamics from incomplete data. Journal of Financial and Quantitative Analysis, 39(2), 305-326.

Hasbrouck, J. (2005). Trading costs and returns for US equities: The evidence from daily data. NYU Stern School Department of Finance Working Paper.

Hausman, J. A. (1978). Specification tests in econometrics. Econometrica: Journal of the econometric society, 1251-1271.

Hughes, P. S., & Zargar, E. (2006). Exchange demutualization. Paper presented at the APEC Financial Regulators Training Initiative Regional Seminar Demutualization of Exchange, Manila.

Karmel, R. (2000). Demutualization: Implications for the Regulation and Governance of Securities Exchanges. Paper presented at the 25th IOSCO Annual Conference.

Krishnamurti, C., Sequeira, J. M., & Fangjian, F. (2003). Stock exchange governance and market quality. Journal of banking & finance, 27(9), 1859-1878.

Lee, R. (1998). What is an exchange?: Automation, management, and regulation of financial markets: OUP Oxford.

Ma, C. K., Peterson, R. L., & Sears, S. (1992). Trading Noise, Adverse Selection, and Intraday BidAsk Spreads in Futures Markets. The Journal of Futures Markets (1986-1998), 12(5), 519.

Nielsson, U. (2009). Stock exchange merger and liquidity: The case of Euronext. Journal of Financial Markets, 12(2), 229-267.

Otchere, I., & Abou-Zied, K. (2008). Stock exchange demutualization, self-listing and performance: The case of the Australian Stock Exchange. Journal of banking & finance, 32(4), 512-525.

Padilla-Angulo, L., & Ben Slimane, F. (2018). Board restructuring and successful demutualization: the stock exchanges. Journal of Organizational Change Management, 31(3), 598-618.

Padilla, A., & Pagano, M. (2005). Efficiency Gains from the Integration of Stock Exchanges: Lessons from the Euronext “Natural Experiment”. A report for Euronext.

Roll, R. (1984). A simple implicit measure of the effective bid‐ask spread in an efficient market. The Journal of finance, 39(4), 1127-1139.

Schmiedel, H. (2001). Technological development and concentration of stock exchanges in Europe.

Schmiedel, H. (2002). Total factor productivity growth in European stock exchanges: A non-parametric frontier approach.

Serifsoy, B. (2008). Demutualization, outsider ownership, and stock exchange performance: empirical evidence. Economics of Governance, 9(4), 305.

Slimane, F. B., & Angulo, L. P. (2018). Strategic change and corporate governance: Evidence from the stock exchange industry. Journal of Business Research.

Steil, B. (2002). Changes in the ownership and governance of securities exchanges: causes and consequences. Brookings-Wharton papers on financial services, 2002(1), 61-91.

Thompson, S., Eales, J. S., & Seibold, D. (1993). Comparison of liquidity costs between the Kansas City and Chicago wheat futures contracts. Journal of Agricultural and Resource Economics, 185-197.

Thompson, S., & Waller, M. (1986). The Execution Cost of Trading in Commodity Futures Markets.



How to Cite

Ali, F., Wang, M., Ali, I., & ALi, S. T. (2020). Does Demutualization Spur Liquidity?. SEISENSE Journal of Management, 3(1), 15-26.