ZBB 2016, 362

RWS Verlag Kommunikationsforum GmbH, Köln RWS Verlag Kommunikationsforum GmbH, Köln 2199-1715 Zeitschrift für Bankrecht und Bankwirtschaft ZBB 2016 AufsätzeWolfgang Bessler* / Colin Schneck**

Securities Market Design and Stock Market Segments for Small Company Shares: Empirical Evidence from Initial Public Offerings in Germany

In 1997 the “Neuer Markt” was opened as a stock market segment for small companies in Germany and initially performed well by attracting 329 initial public offerings (IPOs). It was closed in 2003 and listed companies were forced to transfer to either the higher ranked “Prime Standard” or to the lower ranked “General Standard”. We analyze the valuation effects of these “new economy” IPOs and whether the segment transfer decision could have been predicted with information that was available at the time of the IPO. Companies are more likely to change to the higher ranked Prime Standard if they are larger, more profitable, and have more growth opportunities. Firms that switch to the lower ranked General Standard improved the subsequent performance, suggesting that they are now traded on a market segment that better matches the firm characteristics with the listing requirements. Hence, designing different market segments that fit best with the heterogeneous characteristics of small companies are one avenue for convincing more companies to go public. Insight from this study may help with regard to establishing efficient and successful securities market segments for small company shares, which currently is intensively debated in many countries. Interestingly, Deutsche Börse announced another re-segmentation on November 21, 2016. This includes the closing of the Entry Standard and the opening of a new market segment for SMEs and growth companies on March 1, 2017.

Table of Contents

  • I. Introduction
  • II. Literature Review
    • 1. Securities Markets and Special Market Segments for Small Company Shares
    • 2. Segment Transfer Motives
    • 3. Empirical Evidence of Valuation Effects for the US and other Countries
    • 4. Empirical Evidence for Market Segmentation and Re-Segmentation in Germany
    • 5. “Neuer Markt” and Market Re-segmentation
  • III. Data and Methodology
    • 1. Data and Sample Description
    • 2. Methodology: Performance and Probit Analyses
  • IV. Descriptive Statistics and Valuation Effects
    • 1. Descriptive Statistics of Segment Transfers
    • 2. Variable Analysis of IPO and Re-segmentation Data
    • 3. Long-run Post-IPO Performance
    • 4. Long-run IPO Performance in the “Neuer Markt” Segment
  • V. Analysis of Segment Transfer Decisions
    • 1. Determinants of Segment Transfer Decision in 2003
    • 2. Determinants of Segment Affiliation at the End of 2012
  • VI. Conclusion
Dr. rer.pol., Professor of Finance and Banking, Justus-Liebig University Giessen and Research Fellow Center for Financial Studies, Frankfurt/M.
Dipl.-Kfm., Center for Finance and Banking, Justus-Liebig University Giessen
The authors would like to thank Jay R. Ritter for his comments and suggestions on an earlier draft of the paper. We also appreciate helpful comments and suggestions from the participants at the MFA Annual Meeting, Chicago, 2015, the INFINITI Conference on International Finance, Ljubljana, 2015, the FMA Asian Conference, Seoul, 2015, the European Financial Management Association Conference, Amsterdam, 2015, the World Finance Conference, Buenos Aires, 2015, the Securities and Financial Markets Conference, Kaoshiung, Taiwan, 2015, the Paris Financial Management Conference, Paris, 2015 and the Portuguese Financial Network Conference, Covilha, 2016.

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