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Erschienen in: Small Business Economics 4/2021

06.12.2019

Do investors in SMEs herd? Evidence from French and UK equity markets

verfasst von: Ramzi Benkraiem, Mondher Bouattour, Emilios Galariotis, Anthony Miloudi

Erschienen in: Small Business Economics | Ausgabe 4/2021

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Abstract

According to the social learning literature, agents faced with asymmetries rationally ignore their own information to follow the herd. We argue that investors in listed SMEs that are known for their high informational opacity exhibit more herding compared to investors in large firms in order to lower the impact of informational asymmetries. Given a gap in the listed SMEs’ literature, we test our hypothesis offering first time evidence on their herding behavior. The results support our hypothesis. Herding is more prevalent among listed SMEs (known as micro-caps in the US) during normal periods, while during crisis periods, all micro-cap investors are faced with the same informational problem and do not herd because they expect that none of them has information of better quality. In addition, we reveal cross-market herding effects and a positive link of liquidity and herding. The results have implications for portfolio management and regulatory authorities among others.

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Fußnoten
1
Furthermore, there are indirect effects of listing, e.g. it seems to help them to reduce their bank financing costs because of increased efficiency and better ratings post listing.
 
2
Investors may herd due to reputational or remuneration reasons (Scharfstein and Stein 1990; Galariotis et al. 2015), which is consistent with our arguments.
 
3
Morningstar: “How to invest in AIM Companies?” Available at the following link: http://​www.​morningstar.​co.​uk/​uk/​news/​165558/​how-to-invest-in-aim-companies.​aspx/​
 
4
We control for asymmetry in herding and its tendency to be larger during bear market periods (Goodfellow et al. 2009; Zhou and Lai 2009; Demirer et al. 2010; Economou et al. 2011; and Yao et al. 2014, to name a few). We do so, given mixed findings on asymmetries (Chang et al. 2000; Chiang and Zheng 2010, among others). Financial crises and macroeconomic events have also been widely studied (e.g., Chiang and Zheng 2010; Yao et al. 2014; Galariotis et al. 2015; Guney et al. 2017) and controlled for here given their impact.
 
5
When we refer to small firms in previous studies, we use that in a relative way, where we mean the smaller firms among main market firms that are larger than SMEs and have different and more stringent criteria for listing.
 
6
Readers seeking more information about the Alternative Investment Market are referred to the guide of AIM published by the London Stock Exchange in 2015. Available online at the following address: https://​www.​londonstockexcha​nge.​com/​companies-and-advisors/​aim/​publications/​documents/​a-guide-to-aim.​pdf
 
7
Readers seeking more information about these criteria are referred to the following reference: European Commission. (2016). User Guide to the SME Definition.
 
8
The vast majority of the AIM listed companies (about 68%) can be considered as “nano-caps” with a market value less than €50 million, and only 21% of them are micro-caps with a market capitalization greater than €50 million, with an average value of approximately €64 million. In line with these statistics, our UK sample contains both small- and micro-capitalizations with an average market capitalization of €640 million at the end of the sample period and about €63 million at the beginning of the sample period. Our French Alternext sample contains firms with an average market capitalization of approximately €170 million for the end of 2016 and about €35 million for the year 2006.
 
9
In order to test the robustness of our results, we alternatively run the regression equation (2) by following the three sub-periods investigated in Galariotis et al. (2016) to identify the pre-crisis phase (September 2006 to July 2007), the crisis period (August 2007 to March 2009) and the post-crisis phase (April 2009 to December 2016) for the French stock exchanges, and the pre-crisis phase (May 2005 to July 2007), the crisis period (August 2007 to March 2009) and the post-crisis phase (April 2009 to December 2016) for the UK stock market indices. These findings are quite similar. Hence, we report only the results based on the dummy variable in Table 4.
 
Literatur
Zurück zum Zitat Grinblatt, M., Titman, S. & Wermers, R. (1995). Momentum investment strategies, portfolio performance and herding: a study of mutual fund behavior. American Economic Review 85, 1088-1105. Grinblatt, M., Titman, S. & Wermers, R. (1995). Momentum investment strategies, portfolio performance and herding: a study of mutual fund behavior. American Economic Review 85, 1088-1105.
Zurück zum Zitat Hofstede, G. (2001). Culture’s Consequences (2nd ed.). Beverly Hills: Sage Publications. Hofstede, G. (2001). Culture’s Consequences (2nd ed.). Beverly Hills: Sage Publications.
Metadaten
Titel
Do investors in SMEs herd? Evidence from French and UK equity markets
verfasst von
Ramzi Benkraiem
Mondher Bouattour
Emilios Galariotis
Anthony Miloudi
Publikationsdatum
06.12.2019
Verlag
Springer US
Erschienen in
Small Business Economics / Ausgabe 4/2021
Print ISSN: 0921-898X
Elektronische ISSN: 1573-0913
DOI
https://doi.org/10.1007/s11187-019-00284-0

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