Essays on stock exchange merger, competition and integration

The structure of stock exchanges has changed considerably in the last decade. As international capital markets have become more integrated, the interaction between stock exchanges has become more profound. These series of essays analyse the impact of increased integration and interaction of stock exchanges on various financial outcomes of the firms that list on these exchanges.;The first chapter explores the interdependence of the Nordic and Baltic stock markets in light of increased merger activity of stock exchanges in the region over the sample period, 1996--2006. Co-movements of national stock indices are analyzed and the results show surprisingly little interdependence between the Nordic and Baltic stock indices. In the short run, the response of each market to a shock in another is insignificant. In the longer term there is limited evidence of integration and only weak indication of convergence within the sample period.;The second chapter investigates the effects of the Euronext stock exchange merger on listed firms, i.e. the merger of stock exchanges in Amsterdam, Brussels, Lisbon and Paris. Specifically, it examines how exchange consolidation has affected stock liquidity and how the effect varies with firm type, i.e. what types of firms benefit the most in terms of stock liquidity. The results show asymmetric liquidity gains from the Euronext merger, where the positive effects are concentrated among big firms and firms with foreign sales. There is not a significant increase in stock liquidity of small or medium sized firms, nor of firms that only operate domestically.;The third and last chapter examines competition among international capital markets in light of the apparent outperformance of the moderately regulated Alternative Investment Market (AIM), which is a growth market governed by the London Stock Exchange. This chapter is a response to recent discussion on (i) whether the U.S. capital markets may be losing their competitive edge and (ii) whether financial markets should be more (or less) regulated. Recent literature indicates that the relatively more regulated U.S. stock exchanges still stand strong and any potentially outperforming exchanges---such as the London AIM market---primarily attract small firms. This study, however, shows that these small firms listing on the relatively less regulated AIM market are of similar quality level as firms listing in the U.S. and in continental Europe. Consistent with this result, the failure rate among AIM listed firms is found to be relatively low. They also raise relatively more capital and have a higher market valuation. Overall, even though regulation standards may affect investor sentiment, the paper questions whether a strict regulation environment will necessarily facilitate stock market prosperity.