Growth performance of UK listed SME: the role of the London Stock Exchange junior Market?

The number of listed companies in the US has dropped by more than half in the past two decades (Doidge et al., 2017). The decision by private firms to merge rather than go public seems account for much of this decline (Gao et al., 2013). Yet, it seems that second-tier stock markets (also called Junior markets) are not as affected by this dramatic decrease. Junior stock markets such as the pioneering Alternative Investment Market (AIM, London) are characterized by low listing requirements and customised regulation, allowing even the shares of very small and young companies to be publicly traded (Revest and Sapio, 2013, 2019). Between 1990 and 2013, 77 second tier stock exchanges were introduced in 48 countries. The creation of new stock exchanges for young and small capitalization companies has been a major focus of political deciders, for instance of officials at the European Commission (Bernstein et al. 2019). Political and financial actors tend to consider junior stock markets as a mean on the one hand to – at least partially- counterbalance the sharp IPO's worldwide decrease, and on the other hand as a mechanism to support the financing and the development of SMEs, especially of high growth and innovative firms (Block and al., 2018). The research raises two main questions: i) the justification for the existence of a market segment dedicated to SMES, through the issue of the firms' growth rate. We focus on the older European second-tier stock market: the UK Alternative Investment Market (AIM). If the growth rates exhibit different patterns between the AIM and the main list, then the AIM's existence is somehow legitimized. Indeed, the low AIM's regulation cannot be held responsible for this difference. ii) We propose to examine the strategy of small firms that choose to combine first an IPO and a sale after, following the recent study of Chemmanur and al. (2023). To synthetize, our two main research questions are the following: i) Does being listed on the AIM compared to the LSE's main listed affect the firms growth rate? ii) Regarding firms listed on the AIM, does the growth rates at its turn alters the probability the firm be acquired after an IPO. By means of panel data analysis we estimate Gibrat regressions of various measures of firm growth on samples of listed manufacturing companies, comparing how firm growth responds to initial size, age, profitability, and capital structure across stock market segments characterized by different admission and regulatory oversight rules. Data for our samples are extracted from Eikon (Thomson Reuters) that aggregates databases such as Worldscope and Thomson Deals, and they cover the period 1999-2020. The first empirical results show a difference in growth patterns between the main segment, i.e. the market dedicated to bigger and mature companies, and the junior segment, i.e. the market dedicated to smaller and younger companies. The main segment firms are close to satisfy Gibrat's Law, which is violated on the junior market. Our contribution lies at two levels. First this research sheds light on the way the financial markets try to adapt to new economic and financial environment, faced in particular with the sharp decrease of firms' IPO (mainly in the US). It illustrates also increasing blurred borders between market and "non market" financing. Second, it also shows how firms are able to create new and unanticipated strategies, relying on the junior stock markets. References Bernstein, S., Dev, A., Lerner, J. (2020). The creation and evolution of entrepreneurial public markets. Journal of Financial Economics, 136(2) : 307-329. Block J, Colombo M, Cumming D, Vismara S (2018). New players in entrepreneurial finance and why they are there. Small Bus Econ 50: 239–250 Chemmanur, T. J., Signori, A., Vismara, S. (2023). The exit choices of European private firms: A dynamic empirical analysis. Journal of Financial Markets, 100821. Doidge, C. , Karolyi, G. , Stulz, R. (2013). The us left behind? financial globalization and the rise of IPOs outside the US. J. Financ. Econ. 110: 546–573 . European Commission (2014). Open Innovation and Knowledge Transfer in the European Union. Brussels, European Commission. Gao, X., Ritter, J.R., Zhu, Z., (2013). Where Have All the IPOs Gone? Journal of Financial and Quantitative Analysis 48: 1663-1692. Revest V., Sapio A. (2019). Alternative equity markets and firm creation. Journal of Evolutionary Economics, 29(3): 1083-1118 Revest V., Sapio A. (2013). Does the Alternative Investment Market nurture firm growth? A comparison between listed and private firms. Industrial and Corporate Change, 22 (4): 953-979.