Europe's Second Markets for Small Companies
49 Pages Posted: 9 Nov 2011 Last revised: 5 Jan 2012
Date Written: January 4, 2012
European stock exchanges have repeatedly opened second markets to list small companies. We explain the motivation for the creation of these second markets, and the reasons why many of them have failed. We find that the average long-run performance of initial public offerings (IPOs) on second markets is dramatically worse than for main market IPOs. However, the second markets have provided firms with the opportunity to raise funds at the IPO and in follow-on offerings. The relative success of London’s AIM, which is an exchange-regulated market with minimal regulations, has led other European stock exchanges to establish similar non-EU regulated second markets. Most of the IPOs on these exchange-regulated markets are offered exclusively to institutional investors, and are equivalent to private placements. These IPOs, which frequently raise only a few million euros, rarely develop liquid trading.
Keywords: stock exchanges, second markets, financial regulation, IPOs, AIM, London Stock Exchange, Neuer Markt
JEL Classification: G15, G30
Suggested Citation: Suggested Citation