This post, first published by the Harvard Law School Forum on Corporate Governance, is based on the co-authors' recent European Corporate Governance Institute - Law Working Paper No. 872/2025.

Introduction

Conventional accounts of the rivalry among global stock exchanges emphasize regulatory competition to attract initial public offerings (IPOs). This framing – often cast as a “race to the bottom” – suggests that exchanges compete primarily by lowering governance and disclosure standards to secure marquee listings. In a new paper, we argue that this view is both incomplete and outdated. By examining stock exchanges through the broader lens of political economy, we demonstrate that IPO competition represents only a fraction of the forces shaping today’s capital markets. Exchanges have become strategic assets at the intersection of commercial imperatives, national economic goals, and geopolitical rivalry.

Our analysis makes two central contributions. First, we show that the importance of IPO competition to exchanges, and the regulatory arbitrage thought to propel it, is often overstated. While competition, particularly between New York and non-US exchanges, can be fierce, IPOs generate only marginal revenues for exchanges in comparison to revenues from data and analytics, and private capital is an increasingly important alternative source of finance. Second, we bring nation states into the picture. Governments are active participants in global stock exchange competition, with strong economic, policy, and geopolitical stakes in the health of their domestic or regional exchanges. We highlight how exchanges increasingly function as mechanisms of policy transmission, instruments of financial sovereignty, and geopolitical screening devices – sometimes at the expense of their economic functions.
 

The Shein Listing Saga as a Microcosm

The recent saga of fast-fashion retailer Shein illustrates the new dynamics. After confidentially filing for a New York listing in 2023, Shein encountered pushback from U.S. lawmakers over alleged use of forced labor in its supply chain. It then turned to the London Stock Exchange, which was eager to obtain a high-profile listing despite the allegations, only to face heightened scrutiny from U.K. advocacy groups. Ultimately, Beijing itself blocked the company’s foreign listing, possibly fearing the enhanced scrutiny it would entail, forcing Shein to pursue a Hong Kong listing instead.

This episode highlights several themes we explore in the paper: the enduring prestige of high-profile IPOs and the willingness of regulators to adjust standards to obtain them; and, crucially, the role of governments in shaping access to capital markets in light of geopolitical tensions and policies unrelated to investor protection.
 

Limits of IPO Competition

Stock exchanges have long competed for listings, including by lowering listing or governance standards, but this rivalry is subject to important limitations and caveats:

1. Demutualization and Profit Motives: Most exchanges have demutualized and now operate as profit-oriented shareholder-owned corporations. Listing fees today account for only a small fraction of exchange revenues. For example, listing fees on the London Stock Exchange account for just 3% of its parent company’s income; for the NYSE, the figure is around 10%.
    
2. Regulatory Competition and Governance Standards: Exchanges have historically relaxed rules to secure listings. The London Stock Exchange diluted its rules on related-party transactions in an unsuccessful attempt to attract Saudi Aramco. London, Hong Kong, and Singapore revised their listing rules to allow multiple-voting shares to compete with U.S. exchanges. While these episodes raise familiar race to the top/bottom questions, the importance of regulatory arbitrage in the global capital markets today can be overstated, in part for reasons explained in points 3 and 4 below.
    
3. Economic Motivations Beyond Regulation: Many firms choose the NYSE or Nasdaq not principally for regulatory reasons but for liquidity, visibility, and greater opportunities in areas such as M&A in the huge U.S. market. To name a few recent examples, Flutter Entertainment, CRH, Wise, Spotify, and Arm all explained that they listed in New York for these reasons.
    
4. Competition from Private Capital: Perhaps the most important caveat is that exchanges increasingly compete less with one another than with private markets. Assets under management in private equity, venture capital, and private credit have ballooned from $9.7 trillion in 2012 to over $24 trillion by 2023. Firms avoid public markets to sidestep disclosure burdens, compliance costs, and shareholder activism. Since 2022, take-private deals have outpaced IPOs more than threefold.
    

Taken together, these trends suggest that the long-running narrative on regulatory competition for IPOs misses major contemporary market dynamics.
 

States as Stakeholders

If capital is global, why should governments be deeply invested in the fate of their domestic exchanges? We identify three reasons.

1. Direct and Indirect Economic Benefits: Domestic exchanges generate tax revenues, create jobs, and facilitate capital formation. They provide a platform for small and medium-sized enterprises less likely to seek foreign listings, thereby stimulating domestic firm growth and innovation.
    
2. Preventing Corporate Exodus: Policymakers fear that firms listing abroad may eventually relocate headquarters, talent, and tax bases overseas. European reports, for example, have warned of a “technology drain” as innovative firms list on U.S. markets. Domestic exchanges thus serve as anchors against corporate flight.
    
3. Home Bias: Evidence shows that investors retain a preference for domestically listed companies. Governments reinforce this tendency by encouraging pension funds and other institutional investors to allocate assets domestically.
    

Exchanges as Geopolitical Instruments

Perhaps the most profound shift lies in the politicization of public capital markets. Exchanges now function not simply as neutral financing infrastructure but as levers of economic statecraft and policy transmission. Some examples:

1. United States–China Rivalry: The Holding Foreign Companies Accountable Act, Ant Group’s aborted IPO, Didi’s delisting from the NYSE, and heightened scrutiny of Chinese firms on U.S. markets illustrate how capital markets are enmeshed in national security, data security, and geopolitical concerns.
    
2. Europe: The EU’s Capital Markets Union, recently reframed as the “Savings and Investment Union,” is now explicitly tied to European economic sovereignty and geopolitical positioning. Separately, ESG regulations such as the CSRD and the Supply Chain Directive extend Europe’s normative agenda globally by imposing climate and human rights obligations on listed firms.
    
3. Other Jurisdictions increasingly view exchanges as state assets. For example, Singapore has called relisting on the SGX a “national duty.” India frames domestic listings under the banner of self-reliance. Israel highlights its stock exchange as a force for resilience in wartime. Japan has used the TSE as a tool to implement corporate governance reforms.
    

In short, capital market policies and listing decisions now intersect with areas of government interest well beyond economics, including national security, human rights, financial sovereignty, and industrial policy. But efforts to harness exchanges for strategic ends risks fragmenting global markets and undermining their economic role.
 

Conclusion

Global stock exchanges today operate in a transformed environment. They remain commercial enterprises competing for listings, but they are also strategic assets deeply embedded in state policy and geopolitical rivalry. High-profile IPO competition, though still active, is only part of the story. As private capital expands and governments assert new forms of control, exchanges have been repurposed as instruments of financial sovereignty and normative policy enforcement.

About the Authors

Curtis J. Milhaupt is the William F. Baxter – Visa International Professor of Law at Stanford Law School, Senior Fellow, by courtesy, at the Freeman Spogli Institute for International Studies at Stanford University, and Fellow at the European Corporate Governance Institute. Wolf-Georg Ringe is Professor of Law and Finance at the University of Hamburg, Visiting Professor at the University of Oxford, and Research Member at the European Corporate Governance Institute.

This opinion piece was first published by Project Syndicate >

STANFORD/LOS ANGELES – It is tempting to frame the Sino-American economic rivalry as a clash between engineering doers and lawyerly naysayers, as the Chinese-Canadian analyst Dan Wang does in his new book Breakneck: China’s Quest to Engineer the Future. But this is a false dichotomy, because law is a crucial feature of US capitalism.

We have heard the lawyers-versus-engineers argument before. Forty years ago, Japan’s economic rise induced similar anxieties, most famously articulated in the American sociologist Ezra Vogel’s book Japan as Number One: Lessons for America. Commentators fretted that America was mired in lawsuits while Japan’s best minds were solving problems and driving their country’s meteoric growth. Yet over the ensuing decades, the United States, with its mammoth legal industry, outperformed Japan by a wide margin.

Today’s panic about an Asian economic challenger is equally unwarranted and counterproductive. Invoking national security and the competition with China, Donald Trump’s administration is pursuing increasingly anti-capitalist and legally dubious interventions into private industry, with potentially high costs for American dynamism.

Continue reading at Project Syndicate >