The Good, the Bad and the Ugly... Everyone Wants to Join the 'Nuovo Mercato'

Abstract

In 2000 Italy's new stock market for small fast-growing firms, the Nuovo Mercato (NM), has reached 40 listed companies. Born in June 1999 to join the Euro-NM network, the NM has now a total market capitalization which is larger than the French counterpart (the Nouveau Marche) and about 25% of the German Neuer Markt. In 1999 most of the NM IPOs resulted in remarkable two-digits initial returns, this inebriating investors. The popularity of this Exchange has increased so much that in 2000 more Italian companies listed on this Market than in the main Stock Exchange, albeit many of these IPO firms exhibited negative initial returns after the Nasdaq's fall. Even more, in 2000 some of the companies significantly underperformed the market and now capitalize even 50% less than the initial market value. In this paper we draw a first portrait of the companies listed on the NM. In particular, we look at the issuing procedure and aims of the listing, at the accounting data reported before the listing and at the market price performance in the short run. We try to find out if the market is able to point out the "lemons" and the "champions" among the other companies, and which are the value drivers recognized by investors. The evidence suggests that the controlling shareholders took their firms public on the NM not to divest their stakes, but to raise new capital and enjoy a large audience, seeking for partnerships and financing M&A activities. Many IPO firms took advantage of the "window of opportunity" related to the "new economy" euphoria. Surprisingly, the less profitable and youngest firms have been initially the most welcome by investors, and the most punished in the long run, as well.

Keywords: Nuovo Mercato, IPOs, Italian Stock Exchange, Hi-growth Stocks.

JEL Classification: G30, G32