The Attractiveness of Stock Exchanges and Its Effects on Firm IPO Valuation—Evidence From the Overseas Listing of Mainland Chinese Companies

ABSTRACT Despite the important role of stock exchanges in financial markets, little research investigates stock exchanges as a focal market player. In this study, we examine what makes a stock exchange attractive for foreign companies and whether the destination stock exchange matters for the foreign companies’ initial IPO valuation. The products offered by exchanges, “listings,” can be unbundled into components, including offering liquidity, providing standard‐form rules, monitoring exchange trading, and providing a certifying function. We find that exchanges offering better liquidity, more detailed trading rules, and stronger certification value are more attractive to foreign IPOs. Specifically, demutualized stock exchanges with more peer firms in the same industry and higher investor familiarity attract more foreign listings. We do not find evidence that exchanges with more stringent listing rules attract more foreign listings. Foreign firms that list on US exchanges tend to achieve higher post‐IPO first‐day valuation.