and CEPR 4 1 We are very grateful to Paul Besson (from Kepler-Chevreux), Dion Bongaerts, Catherine d'Hondt, Thierry Foucault, Carole Gresse, Alexander Guembel, Marius Zoican and seminar participants at the 3rd Forum "Market Microstructure: Confronting Many Viewpoints" (Paris) for providing useful comments. We especially thank Eurofidai-Bedofih for providing us the data. Laurence Lescourret is research fellow at CREST. Financial support from the ANR (ANR-16-CE26-0008) is gratefully acknowledged. Part of this research was carried out while Sophie Moinas was appointed Judith C. and William G. Bollinger Visiting Professor at the Wharton School, University of Pennsylvania, and benefited from the support from the CNRS.
This paper proposes a theoretical model to analyse the effect of competition on the quality of the certification process offered by stock exchanges. If the stock exchange truthfully certifies the quality of a new issue, then it would list only the good projects, which would alleviate information asymmetries and generate gains from trade. However, it may be more protable for the listing requirements of exchanges to be too lax. The trade-off between short-term profits and reputation effects induces strategic behaviour. The results show that overestimating the quality of a project is an equilibrium despite the presence of reputation costs. Counterintuitively, introducing competition leads to more lax requirements than in the monopolistic case and reduces welfare as long as the reputation of the competitor is higher than that of the monopolistic stock exchange.
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