2016/32 | LEM Working Paper Series | ||||||||||||||||
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The creation function of a junior listing venue: An empirical test on the Alternative Investment Market |
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Valerie Revest and Alessandro Sapio |
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Keywords | |||||||||||||||||
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Entry; Firm creation; Stock exchange; Junior stock market
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JEL Classifications | |||||||||||||||||
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E44; G23; L26; L60; M13
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Abstract | |||||||||||||||||
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Stock markets perform a creation function if the inflow of financial
capital in the birth of new privately-held firms is stimulated by
the promise of stock market liquidity at a later point in time. Junior
stock market segments, characterized by lighter listing procedures
and costs, may be suited to perform a creation function, but their
liquidity promise may not be reliable due information opacity. We
test the creation function of the Alternative Investment Market
(AIM), the junior segment of the London Stock Exchange (LSE), by means
of dynamic panel data models, where entry at the sectoral level is
regressed on capital raised at IPO on AIM and on the LSE main market,
venture capital investments, and control variables. Our sample
includes UK manufacturing sectors over the 2004-2012 time span. We
find that sectors that raised more capital at IPO on AIM housed more
new entrants in the subsequent years, whereas the results on main
market IPOs and venture capital financing are mixed. The magnitude of
this effect increases as the amounts of raised capital are aggregated
over longer time horizons. Results are confirmed after endogeneity
tests (pseudo diff-in-diff and 2-stage residual inclusion estimators).
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