Abstract
Stock markets perform a creation function if the inflow of finance in the birth of new privately-held firms is stimulated by the promise of stock market liquidity at a later point in time. We test the creation function of the Alternative Investment Market (AIM), the junior segment of the London Stock Exchange, by regressing sectoral entry on capital raised at IPO on AIM and on the main market, venture capital investments, and controls for sectoral productivity and industry turbulence. Our panel includes UK manufacturing sectors between 2004 and 2012. We find that sectors raising more capital on AIM housed more entrants in the subsequent years. The number of venture capital deals is also a positive driver of entry; by contrast, main market IPO proceeds show a negative association with entry. Results hold after endogeneity tests (pseudo diff-in-diff and 2-stage residual inclusion estimators).
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