The Creation and Evolution of Entrepreneurial Public Markets

103 Pages Posted: 19 Dec 2018

See all articles by Shai Bernstein

Shai Bernstein

Stanford Graduate School of Business

Abhishek Dev

Harvard Business School

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2018

Abstract

This paper explores the creation and evolution of new stock exchanges around the world geared towards entrepreneurial companies, known as second-tier exchanges. Using hand-collected novel data, we document the proliferation of these new stock exchanges that were created in a large number of countries, attracted a significant volume of global IPOs, were introduced fairly cyclically, and had lower listing requirements when compared to first-tier stock exchanges. We find that increases in demand for entrepreneurial capital—as proxied for by patenting, IPOs, and stock market valuations—led to a higher likelihood of the introduction of second-tier exchanges. We find no evidence that new second-tier exchanges diverted the existing flow of IPOs from established stock exchanges. Shareholder protection strongly predicted exchange success, even in countries with high levels of venture capital activity, patenting, and financial market development. Second-tier exchanges in countries with better shareholder protection allowed younger, less profitable, but faster-growing companies to raise more capital. These results highlight the importance of institutions in enabling the provision of entrepreneurial capital to young companies.

JEL Classification: G24, G38, L26.

Suggested Citation

Bernstein, Shai and Dev, Abhishek and Lerner, Josh, The Creation and Evolution of Entrepreneurial Public Markets (December 2018). Harvard Business School Entrepreneurial Management Working Paper No. 19-061; Harvard Business School Finance Working Paper No. 19-061; Stanford University Graduate School of Business Research Paper No. 19-13. Available at SSRN: https://ssrn.com/abstract=3303419 or http://dx.doi.org/10.2139/ssrn.3303419

Shai Bernstein

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Abhishek Dev

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Josh Lerner (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)

HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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