Good News on New York Competitiveness

I'm indebted to Elizabeth Olson for bringing my attention to a new study by Craig Doidge, Andrew Karolyi, and Rene Stulz, on the subject of the competitiveness of New York stock exchanges. (There's a non-gated version of the study here.) According to the report, New York exchanges are actually just as competitive as they always were, if not more so.

The study makes for interesting, if dry, reading. And it certainly puts in a new light previous studies from the Committee on Capital Markets Regulation, as well as McKinsey's Bloomberg-Schumer report.

According to Doidge et al, New York is continuing to get exactly the kinds of foreign listings that it always got. And London's Main Market is doing much worse than the NYSE in that respect. The only reason that London looks as though it's outperforming is that a lot of small companies are listing on London's AIM market – companies which would never have qualified for a NYSE listing in the first place.

Look at the number of foreign listings in 1998 and 2005 (figure 1, in the Doidge report). Before Sarbox came in, London's Main market was the leader, with 466 foreign listings; Nasdaq was second, with 441, and NYSE was third, with 392.

In 2005, post-Sarbox, the NYSE was in first place, with 452 foreign listings, London's Main Market had fallen to second place, with just 334, and Nasdaq was third, with 332. Meanwhile, London's AIM had come out of nowhere to sit in fifth place (after Euronext), with 220 foreign listings. Says the report:

It is critical to understand that the typical firm that lists on AIM is a small firm that would not have listed on a U.S. exchange, either in the 1990s or in more recent years. Consequently, it is simply wrong to interpret the success of AIM and the resulting growth in market share of London as evidence of a decline in the attractiveness of U.S. exchanges.

The report looks at lots of different variables, including the increase in market capitalization which comes with a foreign listing, and the likelihood of any given company listing in the US. On every count, it finds no indication of any lack of competitiveness on the part of New York exchanges.

I would very much like to see how someone like Hal Scott will respond to this paper, and for the time being I'm reserving judgment. But it's surely good to see the debate enjoined, rather than being dominated by one side.

(By the way, I'm just talking about foreign listings, here. The superb stock and bond issuance numbers being registered for the past couple of quarters are dominated by domestic companies, who would never list abroad and therefore don't really help us to understand whether New York is losing competitiveness.)