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The Alternative Investment Market (AIM) has established itself as the world’s leading stock market for young growing companies, according to new research published today by the London School of Economics and Political Science (LSE).
The study, From Local to Global – The rise of AIM as a stock market for growing companies, was commissioned by the London Stock Exchange and conducted by Geoffrey Owen, senior fellow in the Department of Management, Professor Julia Black, professor of Law, Law Department, and Sridhar Arcot, a researcher in the Financial Markets Group, LSE.
From Local to Global reviews the growth and development of AIM since its inception in 1995, including an assessment of the quality of the market and the evolution of its regulatory framework. The report documents the rapid expansion of the market both domestically and internationally; since 1995 some 2,300 British and 400 foreign companies have come to AIM, raising a total of £49 billion, of which over 40 per cent has been in the form of further issues.
Key findings include:
- Distinctive regulation – the competitive strength of AIM lies partly in its distinctive regulatory system which is tailored to the needs of smaller companies and partly in its location within the City of London.
- Broad market profile – AIM has matured since the collapse of the dot.com boom and now attracts a wide range of investors, including some of the world’s leading institutions. There is a need to attract more investment from the countries in which non-British companies are based
- Strong after-market performance – an analysis of after-market returns on new admissions since 2000 suggests that, on average, investors in new AIM companies have out performed the wider market
- Low failure rates – although a large proportion of AIM companies are early-stage businesses and/or operating in high-risk sectors, the failure rate on AIM is low, running at less than three per cent in the last four years
- Strong liquidity for larger securities – with an average monthly trading volume of just over 20 million shares, liquidity in the shares of the larger AIM companies is comparable to that of similar-sized companies on the Main Market; the introduction of the new trading system SETSmm, succeeded in its purpose of increasing liquidity and reducing spreads on the largest stocks
- Supports UK enterprise – AIM continues to provide vital support for the UK’s small and medium-sized enterprise sector, including companies based in the regions
The report also shows that the amount of capital raised on AIM has increased sharply in the last few years, rising from £2 billion in 2003 to £15.7 billion in 2006 and that income for the City generated by AIM is estimated to be running at around £1 billion a year, of which about half comes from non-British companies.
Sir Geoffrey Owen, one of the authors of the report, said:
“The growth of AIM has been a great success for the City of London, and reflects the soundness of the regulatory regime that was put in place at the start. The character of the market has clearly changed in the last few years, with the introduction of more foreign companies and the new property and equity investment entities, and this is one of the factors that led the London Stock Exchange to formalize the rules for AIM’s Nominated Advisors and to strengthen AIM’s regulatory capacity. But the regulatory framework continues to provide ample scope for market-led innovation and flexibility, which have been the keys to AIM’s success.”
Clara Furse, Chief Executive of the London Stock Exchange, said:
“We welcome this incisive report from LSE. It highlights the unique qualities of AIM, including its principles-based regulatory system, which have provided investors with access to excellent returns against a backdrop of low failure rates. AIM will continue to develop and evolve, servicing the needs of growing companies from the UK and around the world, as well as contributing to the success of the City and the wider UK economy. Whilst the report highlights increasing competition, often in the form of imitation, AIM has the credentials and momentum to continue in its role as the world’s growth market.
“We concur with LSE’s concluding observation that the core mission of AIM is likely to remain what it has been from the start, to provide a market for small and medium-sized companies which are ambitious to grow and need capital for expansion.”
A full copy of the short report can be found on the London Stock Exchange and LSE’s websites, www.londonstockexchange.com and www.lse.ac.uk.
About the London Stock Exchange
The London Stock Exchange is the world’s premier international equity exchange and a leading provider of services that facilitate the raising of capital and the trading of shares.
The London Stock Exchange is the most international equities exchange in the world and Europe's largest pool of liquidity. By the end of 2006, the market capitalisation of UK and international companies on the London Stock Exchange’s markets amounted to £4.4 trillion, with £6.7 trillion of equity business transacted over the year.
The London Stock Exchange is a Recognised Investment Exchange (RIE) under the Financial Services and Markets Act 2000 and is supervised by the Financial Services Authority.
About AIM:
Established in 1995, AIM is the London Stock Exchange’s international market specifically designed for smaller, growing companies. The market combines the benefits of a public flotation with appropriate levels of regulation – a principles-based regulatory approach together with high standards of disclosure – meeting the needs of international investors. There are currently over 1,600 companies on AIM with a combined market capitalisation of over £100 billion, of which £55 billion is held by institutional investors. AIM’s regulatory model has enabled its companies to achieve long-term investment; of the £52.7 billion raised by AIM companies in the 12 years since launch, £22.9 billion was raised by companies subsequent to joining the market.
On 30 October 2007, the London Stock Exchange and the Tokyo Stock Exchange announced their intention to establish a Japanese market for emerging companies, which will be based on the AIM market model.
About the London School of Economics and Political Science:
The London School of Economics and Political Science – LSE – studies the social sciences in their broadest sense, with an academic profile spanning a wide range of disciplines, from economics, politics and law, to sociology, information systems and accounting and finance.
Founded in 1895 by Beatrice and Sidney Webb, LSE has an outstanding reputation for academic excellence. The School is small, specialist and one of the most international universities in the world. Our study of social, economic and political problems focuses on the different perspectives and experiences of most countries. From its foundation LSE has aimed to be a laboratory of the social sciences, a place where ideas are developed, analysed, evaluated and disseminated around the globe.
The School plans to grow to 9,000 full-time students by 2012. A new academic building,
currently being developed through the School’s £100 million fundraising initiative, the Campaign for LSE, will double the amount of quality teaching space at the School when it opens in October 2008.
