Business Creation and the Stock Market

Javier Suarez and Claudio Michelacci ()

No 3513, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Start-ups; Going public; Venture capital; Growth (search for similar items in EconPapers)
JEL-codes: E44 G32 O40 (search for similar items in EconPapers)
Date: 2002-08
New Economics Papers: this item is included in nep-cfn and nep-ent
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Business Creation and the Stock Market (2004)
Working Paper: Business Creation and the Stock Market (2000)
Working Paper: Business Creation and the Stock Market (2000)
Working Paper: Business Creation and the Stock Market (2000)
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