- The Creation and Evolution of Entrepreneurial Public Markets
How does finance contribute to economic growth? Empirical evidence suggests that one important channel through which financial development enables growth is the funding of innovative and entrepreneurial projects, activities long recognized as particularly hard to finance with outside capital. Well-developed public equity markets have proven instrumental in filling this financing gap, allowing young and fast-growing companies to fund research and development (R&D) activities. Financial policymakers around the world recognize the importance of entrepreneurial finance and have been focused on the creation of new stock exchanges for young and small-capitalization companies, often characterized by less-restrictive listing requirements. Such exchanges, termed second-tier exchanges or junior markets, have been heralded as a way to promote the creation, financing, and retention of job-creating new ventures. The creation of these markets has been a major focus, for instance, of officials at the European Commission. The European
Commission noted that by encouraging such exchanges, it “hopes to strengthen the IPO market in Europe, . . . [as] the sluggish IPO market is particularly worrisome in Europe.” Recent initiatives to create such markets have been led by nations as diverse as China, India, Saudi Arabia, and Trinidad and Tobago. While there have been some highly successful second-tier markets (such as Nasdaq in New York, Alternative Investment Market in London, and ChiNext in Shenzhen), there have been many more failures (such as Easdaq).