Board restructuring and successful demutualization: the stock exchanges


Purpose: The purpose of this paper is to study corporate governance restructuring strategies of companies to adapt to new market conditions following conversion into a for-profit structure. It focuses on the changes in the composition of the board of directors. Design/methodology/approach: The paper conducts a field experiment using stock exchanges, which have become more international over time, and many of which have been forced to demutualize and convert to for-profit structures to compete more efficiently. The paper does a fine-grained analysis of restructuring in the composition of the board using the ANOVA technique. The paper also examines the impact of this board composition restructuring on the reputation of the exchanges using a regression technique. Findings: The authors find that the stock exchanges restructured board composition and refocused them to create better value. Results suggest that the conversion of a company to a for-profit structure brings efficiencies when accompanied by changes in the governing bodies. The authors also find that converting to for-profit firms had a positive impact on the reputation of the exchanges. The positive impact was even greater when accompanied by changes in board composition. Research limitations/implications: A stronger focus on the corporate governance dimension to understand the successful demutualization of stock exchanges is needed. Originality/value: The authors analyze the corporate governance dimension during demutualization processes of an under examined sector. The financial performance of the stock exchanges the authors study significantly improved after their conversion to for-profit organizations and provide an example of successful corporate governance restructuring.

Keywords: board of directors, corporate governance, demutualization, for-profit firm, reputation, stock-exchanges, strategy