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


  • Hisham Farag,

    Corresponding author
    • Address for correspondence: Hisham Farag, Birmingham Business School, University of Birmingham, Edgbaston, Birmingham B15 2TT, UK. Tel: +44(0)-121-414-3101; Fax: +44(0)-121-414-6678; E-mail:

    Search for more papers by this author
  • Chris Mallin,

  • Kean Ow-Yong


Manuscript Type


Research Question/Issue

The 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/Insights

Using 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 Implications

The 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 Implications

The 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.