Europe's Second Markets for Small Companies


  • We would like to thank an anonymous referee, Arif Khurshed, Meziane Lasfer, Erik Lehmann, Michele Meoli, Enrico Pellizzoni, Sheridan Titman, a number of stock exchange officials, and seminar participants at the University of Bergamo, University of Augsburg, and Chinese University of Hong Kong for helpful comments. Andrea Signori provided superb research assistance. Correspondence: Silvio Vismara


European stock exchanges have repeatedly opened second markets to list small companies. We explain the motivation for the creation of these second markets, and the reasons why many of them have failed. We find that the average long-run performance of initial public offerings (IPOs) on second markets is dramatically worse than for main market IPOs. However, the second markets have provided firms with the opportunity to raise funds at the IPO and in follow-on offerings. The relative success of London's AIM, which is an exchange-regulated market with minimal regulations, has led other European stock exchanges to establish similar non-EU regulated second markets. Most of the IPOs on these exchange-regulated markets are offered exclusively to institutional investors, and are equivalent to private placements. These IPOs, which frequently raise only a few million euros, rarely develop liquid trading.