Board Restructuring and Successful Demutualization: the Stock Exchanges

Abstract

The conversion to for-profit structures, i.e. demutualization strategy, has been adopted by a large number of firms in order to face competition. While the literature focuses on testing the impact of demutualization on firm financial performance, little interest has focused on corporate governance restructuring. In this paper, we analyse changes in the composition of boards of directors using a sample of 14 demutualized stock exchanges to better understand the workings behind their successful conversion to for-profit firms. We find that following demutualization, exchanges have decreased board size and appointed more directors politically connected, directors with diversified professional experience and directors with regulatory and international experience. We also document that such corporate governance restructuring has contributed to improving exchange reputation.