Entrepreneurial Equity Financing and Securities Regulation: An Empirical Analysis

International Small Business Journal, 30 (1) 2012: 41 – 64.

34 Pages Posted: 19 Mar 2009 Last revised: 13 Apr 2012

See all articles by Cécile Carpentier

Cécile Carpentier

Laval University; Center for Interuniversity Research and Analysis on Organization (CIRANO); University of Lille II - European Center for Corporate Control Studies

Jean-Marc Suret

Laval University; Center for Interuniversity Research and Analysis on Organization (CIRANO); European Center for Corporate Control Studies

Date Written: July 5, 2010

Abstract

To protect investors, securities regulation generally restrains entrepreneurial ventures from entering the stock market. Scholars and regulators contend that strong rules and requirements for listing are essential to prevent the market from failing. However, these constraints can also unduly impede the growth of new ventures. We use the Canadian case to examine the effects of the relaxation of the regulatory constraints. Unlike in other countries, firms in Canada can list at a very early stage, without revenues, with a minimal size and even without writing a prospectus using the reverse merger technique. This provides a unique opportunity to examine entrepreneurial ventures listed on a public market. The quality of firms, their post-listing operating performance and strategy, and their fate largely support the opinion that strong listing requirements are essential to prevent the emergence of a lemon market. Investors involved in this market obtain very poor returns. This indicates that they are neither able to set correct prices in this market nor to deal with the high level of information asymmetry therein. The reluctance of most regulators to relax the requirements for small business finance can therefore be justified.

Keywords: securities regulation, entrepreneurial ventures, equity financing, reverse merger

JEL Classification: G30, G32, L21, O16

Suggested Citation

Carpentier, Cécile and Suret, Jean-Marc, Entrepreneurial Equity Financing and Securities Regulation: An Empirical Analysis (July 5, 2010). International Small Business Journal, 30 (1) 2012: 41 – 64.. Available at SSRN: https://ssrn.com/abstract=1362645

Cécile Carpentier

Laval University ( email )

Pavilion Palasis Prince
Quebec, Quebec G1V 0A6
Canada

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal, Quebec H3C 3J7
Canada

University of Lille II - European Center for Corporate Control Studies ( email )

2 rue de Mulhouse
BP381
Lille, 59800
France

Jean-Marc Suret (Contact Author)

Laval University ( email )

Accounting School
Quebec, P.Q. G1K 7P4
Canada
418-656-7134 (Phone)
418-656-7746 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

1130 rue Sherbrooke Ouest
Bureau 1400
Montreal, Quebec H3A 2M8
Canada

European Center for Corporate Control Studies ( email )

2 rue de Mulhouse
BP381
Lille, 59800
France

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