Second-Tier Stock Exchanges and Growth of Entrepreneurship

We examine the role of second-tier stock exchanges in an entrepreneurial context from a global perspective. We construct a country-industry-year panel of global venture capitalist (VC)-invested startups, and find a significant increase in entrepreneurial activity following the launch of such markets. A causal interpretation is supported by additional tests for staggered difference-in-differences regressions and interacted regressions based on industry-specific dependence on second-tier stock exchanges. We propose a VC exit mechanism that receives empirical support: the launch of second-tier stock exchanges positively predicts (i) VC investment in startups, (ii) VCs’ valuation of startups, (iii) startups’ patenting records, (iv) startups’ initial public offering (IPO) likelihood, and (v) startups’ IPO valuation. We find that more startups are created in countries with more VC investment after the launch of such markets. We also find that the effect of second-tier stock exchanges on entrepreneurial ventures increases with financial resources, human capital, and intellectual property protection.

This paper was accepted by Matt Marx, entrepreneurship and innovation.

Funding: H. Gao acknowledges financial support from the National Natural Science Foundation of China [Grant 72472028]. P.-H. Hsu acknowledges research support from the National Science and Technology Council in Taiwan [Grants NSTC 113-2410-H-007-008-MY3 and NSTC 114-2410-H-007-016-MY3], the Mack Institute for Innovation Management of the Wharton School at the University of Pennsylvania, and the E.SUN Academic Award for financial and research support. Y. Wang acknowledges financial support from the National Natural Science Foundation of China [Grant 72402130]. This work was also supported by the Dalian Commodity Exchange.

Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.08619.