Entrepreneurial equity financing and securities regulation: An empirical analysis

Abstract

To protect investors, securities regulation generally restrains entrepreneurial ventures from entering the stock market. Scholars and regulators contend that strong rules and requirements for listing are essential to prevent the market from failing. However, these constraints can also unduly impede the growth of new ventures. We use the Canadian case to examine the effects of the relaxation of the regulatory constraints. Unlike in other countries, firms in Canada can list at a very early stage, without revenues, with a minimal size and even without writing a prospectus using the reverse merger technique. This provides a unique opportunity to examine entrepreneurial ventures listed on a public market. The quality of firms, their post-listing operating performance and strategy, and their fate largely support the opinion that strong listing requirements are essential to prevent the emergence of a lemon market. Investors involved in this market obtain very poor returns. This indicates that they are neither able to set correct prices in this market nor deal with the high level of information asymmetry therein. The reluctance of most regulators to relax the requirements for small business finance can therefore, be justified.

Canadian business angel perspectives on exit: A research note

“…Therefore, analysing the Canadian situation of angel exit is particularly interesting. Canada enables firms to access a venture stock exchange at an early stage of development (Carpentier and Suret, 2012); in addition, the main stock market is easily accessible. The median gross proceeds of firms listing on the TSX venture exchange (TSXV) from 1997 to 2011 were CAN$1.6m, close to the total amount of Canadian angel deals, and most firms list before reporting any revenues.…”

Sanctions as a Mechanism Disciplining Issuers on the NewConnect Market

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Early-Stage of Innovations: Selection System Criteria for Funding U.S. Biotech SMEs

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