The Impact of Stock Exchange Regulation on Corporate Performance of the European New Markets

Marc Goergen

Manchester School of Management, UMIST

Joseph A. McCahery

Professor of International Business Law, Tilburg University.

Luc Renneboog

Tilburg University

jcls Vol 3 Issue 2 (October 2003)

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Abstract

Several European countries have launched new secondary markets in order to facilitate the financing of innovative companies with high growth potential. This article analyses whether these ‘Euro.NMs’ fulfil their role of promoting start-up firms by providing liquidity and a device for separating ownership and control quickly after the creation of the high risk/high growth business. First, it charts the rise and fall of the Eruo.NMs. Their early success was remarkable. However, since 2000, the markets have suffered from the decline in technology stocks, with losses on some markets exceeding 80 per cent. It appears that further consolidation is inevitable given the failure of the Euro.NMs to continue to attract listings. Secondly, the paper demonstrates that there are significant performance discrepancies across the Euro.NMs. Evidence from first day trading shows that firm and industry characteristics, rather than differences in listing and disclosure requirements, are the primary determinants. Thirdly, the authors examine evidence on the long-run underperformance of Euro.NMs, suggesting that underperformance is strongly related to industry.

Keywords

initial public offerings; underpriceing; long-run underperformance; stock exchange regulation; listing rules. Euro.NM; competition between stock exchanges