Skip to main content
SpringerLink
Log in

New issues on the U.K. Unlisted Securities Market: The ability of entrepreneurs to signal firm value

  • Published:
Small Business Economics Aims and scope Submit manuscript

    We’re sorry, something doesn't seem to be working properly.

    Please try refreshing the page. If that doesn't work, please contact support so we can address the problem.

Abstract

The present paper investigates whether small firm entrepreneurs are able to signal the value of their firms to potential investors when seeking a listing on the U.K. Unlisted Securities Market (USM). The signals considered are the percentage of equity retained by the original entrepreneurs, the net proceeds raised by an issue, the choice of advising agents to an issue, the disclosure of an earnings forecast and the level of underpricing of the new issue. In addition, the possible interactions between the individual signals are considered and included in the analysis. The results of the empirical analysis suggest that firm value is positively and significantly related to the percentage of retained equity and the net proceeds raised: thus suggesting, therefore, that stock markets will invest at higher values, ceteris paribus, if entrepreneurs indicate confidence in their enterprises via levels of equity retention and the funds they intend to invest in future projects.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Bibliography

  • Akerlof, G., 1970, ‘The Market for Lemons: Qualitative Uncertainty and the Market Mechanism’, Quarterly Journal of Economics 84, 488–500.

    Google Scholar 

  • Allen, F. and G. R. Faulhaber, 1989, ‘Signalling by Underpricing in the IPO Market’, Journal of Financial Economics 23, 303–323.

    Article  Google Scholar 

  • Baron, D. P., 1982, ‘A Model of the Demand for Investment Banking Advising and Distribution Services for New Issues’, Journal of Finance 37, 955–976.

    Google Scholar 

  • Beatty, R. P., 1989, ‘Auditor Reputation and the Pricing of Initial Public Offerings’, Accounting Review 64, 693–709.

    Google Scholar 

  • Beatty, R. P. and J. R. Ritter, 1986, ‘Investment Banking, Reputation and the Underpricing of Initial Public Offerings’, Journal of Financial Economics 15, 213–232.

    Article  Google Scholar 

  • Bhattacharya, S., 1979, ‘Imperfect Information, Dividend Policy and the “Bird in the Hand” Fallacy’, Bell Journal of Economics 10, 259–270.

    Google Scholar 

  • Bhattacharya, S., 1980, ‘Nondissipative Signalling Structures and Dividend Policy’, Quarterly Journal of Economics 95, 1–24.

    Google Scholar 

  • Bhattacharya, S. and J. Ritter, 1983, ‘Innovation and Communication: Signalling with Partial Disclosure’, Review of Economic Studies 50, 331–346.

    Google Scholar 

  • Buckland, R. and E. W. Davis, 1987, ‘Barriers to Entry in the Unlisted Securities Market: The Significance of Administrative Expenses’, Accounting and Business Research 17(68), 301–309.

    Google Scholar 

  • Buckland, R. and E. W. Davis, 1989, The Unlisted Securities Market, Oxford; Clarendon Press.

    Google Scholar 

  • Buckland, R., P. J. Herbert, and K. A. Yeomans, 1981, ‘Price Discount on New Equity Issues in the UK and Their Relationship to Investor Subsciption in the Period 1965–75’, Journal of Business Finance and Accounting 8(1), 79–95.

    Google Scholar 

  • Downes, D. H. and R. Heinkel, 1982, ‘Signalling and the Pricing of New Issues’, Journal of Finance 37, 1–10.

    Google Scholar 

  • Grinblatt, M. and C. Y. Hwang, 1989, ‘Signalling and the Pricing of New Issues’, Journal of Finance 44, 393–420.

    Google Scholar 

  • Heinkel, R. and E. S. Schwartz, 1986, ‘Rights versus Underwritten Offerings: An Asymmetric Information Approach’, Journal of Finance 41, 1–18.

    Google Scholar 

  • Hughes, P. J., 1986, ‘Signalling by Direct Disclosure under Asymmetric Information’, Journal of Accounting and Economics 8, 119–142.

    Article  Google Scholar 

  • Jarque, C. M. and A. K. Bera, 1980, ‘Efficient Tests for Normality, Homoscedasiticity and Serial Independence of Regression Residuals’, Economic Letters 6, 225–229.

    Article  Google Scholar 

  • Krinsky, I. and W. Rotenberg, 1989, ‘Signalling and the Valuation of Unseasoned New Issues Revisited’, Journal of Financial and Quantitative Analysis 24, 257–266.

    Google Scholar 

  • Leland, H. E. and D. H. Pyle, 1977, ‘Informational Asymmetries, Financial Structure and Financial Intermediation’, Journal of Finance 32, 371–387.

    Google Scholar 

  • Ritter, J. R., 1984, ‘Signalling and the Valuation of Unseasoned New Issues: A Comment’, Journal of Finance, 39, 1231–1237.

    Google Scholar 

  • Rock, K., 1982, ‘Why Are New Issues Underpriced’, Unpublished Ph.D. Thesis, University of Chicago, Chicago.

  • Rock, K., 1986, ‘Why Are New Issues Underpriced’, Journal of Financial Economics 15, 187–212.

    Article  Google Scholar 

  • Ross, S., 1977, ‘The Determination of Financial Structure: The Incentive Signalling Approach’, Bell Journal of Economics 8, 23–40.

    Google Scholar 

  • Tinic, S. M., 1988, ‘Anatomy of Initial Public Offerings of Common Stock’, Journal of Finance 43, 789–822.

    Google Scholar 

  • Titman, S. and B. Trueman, 1986, ‘Information Quality and the Valuation of New Issues’, Journal of Accounting and Economics 8, 159–172.

    Article  Google Scholar 

  • Trueman, B., 1986a, ‘The Relationship Between the Level of Capital Expenditures and Firm Value’, Journal of Financial and Quantitative Analysis 21(2), 115–129.

    Google Scholar 

  • Trueman, B., 1986b, ‘Why Do Managers Voluntarily Release Earnings Forecasts?’ Journal of Accounting and Economics 8, 53–71.

    Article  Google Scholar 

  • Verrecchia, R. E.,1983, ‘Discretionary Disclosure’, Journal of Accounting and Economics 5, 179–194.

    Article  Google Scholar 

  • Welch, I., 1989, ‘Seasoned Offerings, Imitation Costs, and Underprincing of Initial Public Offerings’, Journal of Finance 44, 421–449.

    Google Scholar 

  • White, H., 1980, ‘A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity’, Econometrica 48, 817–838.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. School of Business and Economic Studies, University of Leeds, UK

    K. Keasey & H. Short

  2. Department of Finance, Chinese University of Hong Kong, Hong Kong

    P. McGuinness

Authors
  1. K. Keasey
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. H. Short
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. P. McGuinness
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Cite this article

Keasey, K., Short, H. & McGuinness, P. New issues on the U.K. Unlisted Securities Market: The ability of entrepreneurs to signal firm value. Small Bus Econ 4, 15–27 (1992). https://doi.org/10.1007/BF00402212

Download citation

  • Accepted:

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF00402212

Keywords

Search

Navigation