UK Alternative Investment Research Articles

Governance, Ownership Structure, and Performance of Entrepreneurial IPOs in AIM Companies

AbstractManuscript TypeEmpiricalResearch Question/IssueThe study investigates the impact of venture capital (VC) ownership on corporate governance characteristics in entrepreneurial companies listed on the UK's Alternative Investment Market (AIM). In particular, the paper examines the impact of venture capital funds on the firm's governance structure post‐IPO and the dynamic inter‐relationship between corporate governance (CG), venture capital ownership and financial performance.Research Findings/InsightsUsing hand collected data from a sample of 271 entrepreneurial companies admitted to AIM during the period 2000–2007, we measure and track the corporate governance characteristics by constructing a CGAIM50 index. Our findings suggest a high level of VC ownership and its reputation leads to better corporate governance in our sample of entrepreneurial Initial Public Offering (IPO) companies. We also find a positive and significant relationship between corporate governance characteristics and financial performance, which suggests that outside shareholders such as VCs bring managerial know‐how and hence help improve IPO companies' performance.Theoretical/Academic ImplicationsThe study is the first to examine the CG characteristics of entrepreneurial (fast growth) companies on the AIM using a unique index. The inter‐relationship between venture capital ownership structure, corporate governance, and financial performance is modeled using the system GMM estimator of dynamic panel model in addition to the 3SLS methodology.Practitioner/Policy ImplicationsThe study offers practical implications for regulatory authorities and investors, as it highlights that venture capital funds investing in entrepreneurial companies on the AIM have a positive impact on both corporate governance and company performance, which improves after IPO admission, and also on subsequent performance.

Corporate Governance in Alternative Investment Market (AIM) Companies: Determinants of Corporate Governance Disclosure

This study examines the relationship between company and market-related variables, and the disclosure level of voluntary corporate governance practice in the UK's Alternative Investment Market (AIM) companies. AIM is a market that has grown rapidly in the last decade, attracting companies from around the world. It has a 'lighter touch' regulatory regime which has made it more attractive for companies seeking their first listing, or companies seeking an overseas listing in a well-respected market. Using a sample of 300 financial reports and accounts of AIM companies, we carry out regression analysis which indicates that age, company size, board size and the presence of turnover (i.e. the company is active) are positively associated with the adoption, and disclosure, of recommended governance practice. Our study also reveals that more highly geared AIM companies tend to make less disclosure. Overall, our findings suggest that the internal dynamics of AIM companies exert a greater influence on voluntary corporate governance disclosures than do market-related factors. We contribute to the literature on AIM companies and corporate governance in two main ways. First, we provide evidence on the extent of disclosure of corporate governance by AIM companies, an area where research has been largely absent. Secondly, we provide some insights into which company-level and market-related variables may be significant to corporate governance disclosure. Our findings have implications not just for the UK but also for overseas companies listed on AIM, and for countries who either have, or are considering introducing, a similar market.

Hedge fund side letters: guidance for UK managers

PurposeThis paper seeks to discuss the Guidance Note on disclosure of hedge fund side letters issued by the UK's Alternative Investment Management Association (AIMA) in September 2006.Design/methodology/approachExplains the meaning of “material” and “non‐material” and recommends immediate actions and ongoing disclosure policies for funds and fund managers.FindingsGenerally, it is more appropriate for disclosure to come from the fund than the fund manager. The manager has a degree of discretion as to what constitutes a “material” term. The new FSA approach does not prohibit the use of side letters.Originality/valueAn interpretation of the Guidance that will help fund managers fine‐tune their policies on use of side letters and disclosure of terms in those letters.