Corporate Governance in Small Companies – the Alternative Investment Market

Abstract

This paper examines corporate governance in small companies listed on the Alternative Investment Market (AIM) which was established in the UK in 1995. The London Stock Exchange rules stipulate that each company wishing to join AIM must have a nominated advisor and broker. The nominated advisor is seen as playing a key role in AIM companies, enjoying an ongoing advisory relationship as well as playing a monitoring role. The presence of the nominated advisor may, in some ways, mean that less emphasis is placed on formal corporate governance structures, as the nominated advisor does have a close relationship with the company it advises. The formal aspects of corporate governance are analysed in terms of disclosures in the admission document put forward by AIM companies coming to market. Preliminary findings suggest AIM companies brought onto the market by a nominated advisor who also acts as the nominated broker pay more attention to the Cadbury Code on corporate governance. Also, the study suggests AIM companies raising no new capital on admission possess relatively weaker corporate governance structures. The success of AIM, with over 240 companies having joined in the first 18 months of its existence, means that our findings have implications for policy‐makers involved in corporate governance not only in the UK but also for those involved in the establishment of markets for small companies in a global context.

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