Gazelles and muppets in the city: risk sharing and firm growth quantiles in a junior stock market

Financialization is persuading academics and policy-makers that the growth of SMEs can be unleashed by promoting their quotation on stock markets. Is it true? Answering can give clues on the functions that stock markets actually perform in the financialized world, from collecting finance for productive investments, to providing opportunities for value extraction; from a selection device to a risk-sharing mechanism. The associated effects may be amplified in segments catering to companies that do not satisfy the listing requirements of the official list, such as junior markets. In this article, we test hypotheses linking the shape of the firm growth rates distribution to the functions performed by a junior stock market, through quantile regressions. We use a sample of UK manufacturing companies listed on Alternative Investment Market (AIM), the junior segment of the London Stock Exchange, and comparably small and young unlisted companies. We find that the operating revenues and total assets of AIM-listed gazelles grow faster than for their unlisted peers, after controlling for lagged values of size, age, and growth. Yet, there is a loss reinforcing effect for companies listed on the AIM. After controlling for endogeneity by estimating instrumental variable quantile treatment effects, our findings dismiss the existence of a treatment effect of AIM and are consistent with the stock market attracting relatively risky companies.