EconPapers    
Economics at your fingertips  
 

Business Creation and the Stock Market

Claudio Michelacci () and Javier Suarez ()

Review of Economic Studies, 2004, vol. 71, issue 2, 459-481

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 finance their operations without going public 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 lower the costs for start-ups to go public 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. Copyright 2004, Wiley-Blackwell.

Date: 2004
References: Add references at CitEc
Citations: View citations in EconPapers (58) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1111/0034-6527.00292 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Business Creation and the Stock Market (2002) Downloads
Working Paper: Business Creation and the Stock Market (2000) Downloads
Working Paper: Business Creation and the Stock Market (2000) Downloads
Working Paper: Business Creation and the Stock Market (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:71:y:2004:i:2:p:459-481

Access Statistics for this article

Review of Economic Studies is currently edited by Andrea Prat, Bruno Biais, Kjetil Storesletten and Enrique Sentana

More articles in Review of Economic Studies from Oxford University Press
Bibliographic data for series maintained by Oxford University Press () and Christopher F. Baum ().

 
Page updated 2021-12-29
Handle: RePEc:oup:restud:v:71:y:2004:i:2:p:459-481