Why Firms Favour the AIM When They Can List on Main Market?

It is often argued that the popularity of Alternative Investment Market (AIM) in terms of higher number of listings relative to the Main Market (MM) is mainly due to the strict listing requirements in the MM. During the 1995 to 2014 period, 577 out of 1143 AIM listed firms did not qualify for MM listing, but the rest (566) that raised equity in AIM could have joined the MM. This raises the question why firms that meet the heavier regulatory environment of the MM choose the AIM, a lighter regulatory environment. This paper subjects this question to a comprehensive investigation and finds that the market choice is a self-selection decision. The two markets attract companies with different characteristics, and dissimilar post-listing investment and financing priorities. The evidence also shows that smaller and younger companies choose to be listed on the AIM due to lower listing and on-going costs. Heckman Selection models addressing the important question of what would have been the operating performance if AIM companies joined MM indicate that AIM companies would not perform better had they selected to go public in the MM.