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  • May 2020
  • Article
  • Journal of Financial Economics

The Creation and Evolution of Entrepreneurial Public Markets

By: Shai Bernstein, Abhishek Dev and Josh Lerner
  • Format:Print
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Abstract

This paper explores the creation and evolution of new stock exchanges around the world geared towards entrepreneurial companies, known as second-tier exchanges. Using hand-collected novel data, we document the proliferation of these new stock exchanges that were created in a large number of countries, attracted a significant volume of global IPOs, were introduced fairly cyclically, and had lower listing requirements when compared to first-tier stock exchanges. We find that increases in demand for entrepreneurial capital—as proxied for by patenting, IPOs, and stock market valuations—led to a higher likelihood of the introduction of second-tier exchanges. We find no evidence that new second-tier exchanges diverted the existing flow of IPOs from established stock exchanges. Shareholder protection strongly predicted exchange success, even in countries with high levels of venture capital activity, patenting, and financial market development. Second-tier exchanges in countries with better shareholder protection allowed younger, less profitable, but faster-growing companies to raise more capital. These results highlight the importance of institutions in enabling the provision of entrepreneurial capital to young companies.

Keywords

Entrepreneurial Finance; Stock Exchanges; Entrepreneurship; Finance; Initial Public Offering; Capital

Citation

Bernstein, Shai, Abhishek Dev, and Josh Lerner. "The Creation and Evolution of Entrepreneurial Public Markets." Journal of Financial Economics 136, no. 2 (May 2020): 307–329.
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About The Authors

Shai Benjamin Bernstein

Entrepreneurial Management
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Josh Lerner

Entrepreneurial Management
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  • Chime Solutions By: Shai Benjamin Bernstein, William R. Kerr, Christopher Stanton and Mel Martin
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  • Yale Investments Office: November 2020 By: Josh Lerner, Jo Tango and Alys Ferragamo
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