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Business Creation and the Stock Market

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Author Info
Michelacci, Claudio
Suarez, Javier

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Abstract

We claim that the stock market encourages business creation, innovation, and growth by allowing the recycling of ‘informed capital’. Due to incentive and information problems, start-ups face larger costs of going public than mature firms. Sustaining a tight relationship with a monitor (bank, venture capitalist) allows them to postpone their going public decision until profitability prospects are clearer or incentive problems are less severe. However, the earlier young firms go public, the quicker monitors’ informed capital is redirected towards new start-ups. Hence, when informed capital is in limited supply, factors that accelerate firms’ access to the stock market encourage business creation. Technological spill-overs associated with business creation and thick market externalities in the young firms segment of the stock market provide prima facie cases for encouraging young firms to go public.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3513.

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Date of creation: Aug 2002
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Handle: RePEc:cpr:ceprdp:3513

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Keywords: going public growth start-ups venture capital

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Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ari Hyytinen & Tuomas Takalo, 2004. "Investor protection and business creation," Finance 0404021, EconWPA. [Downloadable!]
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  2. Bottazzi, Laura & Da Rin, Marco, 2002. "Europe's 'New' Stock Markets," CEPR Discussion Papers 3521, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Christian Keuschnigg, 2003. "Optimal Public Policy For Venture Capital Backed Innovation," University of St. Gallen Department of Economics working paper series 2003 2003-09, Department of Economics, University of St. Gallen. [Downloadable!]
    Other versions:
  4. Marco Da Rin & Giovanna Nicodano & Alessandro Sembenelli, . "Public Policy and the Creation of Active Venture Capital Markets," Working Papers 270, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  5. Boyan Jovanovic & Balà zs Szentes, 2007. "On the Return to Venture Capital," NBER Working Papers 12874, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Cassiman, Bruno & Ueda, Masako, 2002. "Optimal Project Rejection and New Firm Start-Ups," CEPR Discussion Papers 3429, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Jyrki Ali-Yrkkö & Ari Hyytinen & Johanna Liukkonen, 2001. "Exiting Venture Capital Investments: Lessons from Finland," Discussion Papers 781, The Research Institute of the Finnish Economy. [Downloadable!]
  8. Christian Hopp & Axel Dreher, 2007. "Do Differences in Institutional and Legal Environments Explain Cross-Country Variations in IPO Underpricing?," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  9. Christian Keuschnigg, 2003. "Public Policy and Venture Capital Backed Innovation," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  10. Robin Boadway & Oana Secrieru & Marianne Vigneault, 2005. "A Search Model of Venture Capital, Entrepreneurship, and Unemployment," Working Papers 05-24, Bank of Canada. [Downloadable!]
  11. Laura Bottazzi & Marco da Rin, 2003. "Financing Entrepreneurial Firms in Europe: Facts, Issues, and Research Agenda," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  12. Marco Da Rin & María Fabiana Penas, 2007. "The Effect of Venture Capital on Innovation Strategies," NBER Working Papers 13636, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Inderst, Roman & Mueller, Holger M, 2002. "Venture Capital Contracts and Market Structure," CEPR Discussion Papers 3203, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. Christian Keuschnigg & Soren Bo Nielsen, 2003. "Taxes and Venture Capital Support," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  15. Groh, Alexander P. & Liechtenstein, Heinrich & Canela, Miguel A., 2008. "Limited partners' perceptions of the Central Eastern European venture capital and private equity market," IESE Research Papers D/727, IESE Business School. [Downloadable!]
  16. Pierre Giot & Armin Schwienbacher, 2003. "IPOs, Trade Sales and Liquidations: Modelling Venture Capital Exits Using Survival Analysis," Finance 0312006, EconWPA. [Downloadable!]
    Other versions:
  17. Josep Pijoan-Mas, 2003. "Precautionary Savings Or Working Longer Hours?," Working Papers wp2003_0311, CEMFI. [Downloadable!]
    Other versions:
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