European secondary markets appear to have so far failed as providers of capital for emerging growth companies. Conventional explanations focus on the supply side of the market, blaming over-regulation, complex listing requirements, the absence of an equity culture, weak competition between national markets, and a shortage of growth companies. This paper highlights significant underperformance in long-term IPO returns in European markets, possibly affecting demand by Investors. Alternative demand-side factors, such as constraints on Institutional investments in small cap stocks and the consequent lack of supporting analysts, and methodological Issues in measuring long-term performance, are also discussed.
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