Rejected Stock Exchange Applicants

Journal: Journal of Financial Economics

Date: 20210201

Author: Fjesme, Sturla L.; Galpin, Neal E.; Moore, Lyndon

Abstract:
We examine listing applications by firms to the London Stock Exchange between 1891 and 1911. The exchange rejected 82 (13.1%) of the 628 applicants to its main board. Accepted applicants were twice as likely to pay dividends (and to pay twice as much) and had longer firm lives than rejected applicants. Rejected applicants were more likely to file for liquidation than successful applicants. These results remain even after we control for the primary benefits of the listing itself: liquidity and future capital inflows. In this era, the London Stock Exchange could screen applicants for listing.

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Key Findings

Screening Effect

The London Stock Exchange effectively screened firms - accepted firms had better survival rates, higher dividend payments, and fewer liquidations than rejected firms between 1891-1911

Application Success

Of 628 applicants to the LSE main board, 82 (13.1%) were rejected, demonstrating selective admission standards

Performance Outcomes

Accepted firms lived longer (35.5 vs 18.2 years), paid more dividends (50.5% vs 25.8% of years), and were more likely to merge (51.8% vs 29.3%) than rejected firms

Firm Survival and Exit Outcomes

Dividend Payment Performance

Application Processing Timeline

Contribution and Implications

Data Sources