BIS research looks at mid-sized businesses' motivations for public listing

Researchers from Middlesex University Business School surveyed a small sample of stock exchange listed and unlisted mid-sized businesses for the paper, which was published by the Department for Business, Innovation and Skills (BIS). The research looks at the reasons behind why companies list on a stock exchange, and what could be putting them off from doing so.

"Companies list for a variety of reasons including raising funds for business development, profile raising and reputational gains, and providing exit options for investors," the report said. "UK markets offer good value for money and are deemed to have a high reputation and a light touch regulation, with a 'horses for courses' range of markets available."

"However, there can be risks for companies running into trouble and some costs around managing (publicly) the greater number of shareholders and their expectations. Some reporting requirements are also unwelcome. These factors represent deterrents to listing but also important in the listing decision is the nature of the company itself and its modus operandi," The report said.

The researchers surveyed 17 UK stock exchange listed mid-sized businesses and 14 unlisted businesses for their report. The vast majority of respondents were growth-orientated and performing well, with four fifths reporting increased sales turnover in the last year and higher levels of trade than five years ago. Almost three quarters had increased employment in the past five years, with a median increase of 25 employees. Two thirds of respondents, both listed and unlisted, were forecasting sales and employment growth over the next 12 months.

Although many of the listed businesses surveyed exported and some traded extensively overseas, the researchers found that they chose to list on UK stock exchanges because of their international recognition. UK-owned businesses in particular saw UK stock markets as the natural place to list because they were easy to understand, with clear regulations and costs, and had a high reputation.

Surveyed businesses chose to list for a variety of reasons, which also affected their choice of UK stock exchange listing. The vast majority listed to raise funds for business development including strategic acquisitions, research and development, and restructuring. They also listed to raise profile, enhance their brand and increase market credibility, which some said made it easier for them to access alternative finance.

The report noted a "marked dichotomy" between the listed and unlisted businesses surveyed, which it said "strongly reflects the different management philosophies of these types of businesses". The unlisted companies were "characterised by long established family and individual private ownership that have no interest in listing, preferring organic growth through reinvesting retained profits or using bank debt finance", according to the report.

Among the reasons given by the unlisted companies for choosing not to list were the apparently high levels of reporting and the amount of time and costs this entailed. However, those listed businesses that responded said that they were not deterred from listing by reporting burdens and costs.

Corporate law expert Martin Webster of Pinsent Masons, the law firm behind Out-Law.com, said that the research confirmed London's reputation as a good place to list due to the certainty of its listing regime, effective regulation and its large investor community.

"As the economy domestically and internationally picks up, more companies will want to invest in new ventures and will look to the equity markets for finance, particularly if bank lending remains tight," he said. "That will hopefully bring new companies to the main list and to AIM [the alternative investment market] and encourage those already there to embark on secondary issues."

However, he added that the Government had to be careful not to "choke off these entrepreneurial companies by over-zealous regulation". The Government has recently begun work on a number of regulatory initiatives, including new measures that will require companies to disclose their true beneficial owners to Companies House and new corporate social responsibility measures. In addition, new rules on directors' reports and board remuneration will be introduced from 1 October.