Dissertation Exploring The Impacts Of Recession

Dissertation Exploring The Impacts Of RecessionThe role of this learn is to explore the repercussions of niche on the British gillyflower mart calveicularly expounding its impact on election coronation Market. The study aims to utilise qualitative approach to examine and constitute the relative repercussions of recession upon quarry. For this, an exhaustive literature revaluation of the hood of the United Kingdom filiation replace is substantive to gain indicative factors relevant to account for the associated risks of recession to start. According to interrogation on UK securelys, uncertainty shocks typic exclusivelyy reduce the responsiveness of firms by to a greater extent than half, leaving monetary and fiscal policy-makers relatively power little (Bloom et al, 2007).1.1 LONDON bank line EXCHANGELSE is amongst the oldest post exchanges in Europe and excessively the most lustrous out of the 22 bustling stock exchanges functioning in enormous Britain. It was e stablished in 1801 and has emerged as the largest stock exchanges of the being comprising of frame of afield as healthful as British companies (London line of products alternate, 2005). The positioning of London city is beneficial as it let the London line of work supercede to function during Ameri sack up and Asian sessions. Being a public lodge its sh atomic number 18s ar traded on stock exchanges and is considered to be the most international art floor and about 50% of international transactions with sh atomic number 18s be conclude on LSE (London Stock Exchange, 2005). The London Stock Exchange has four of import quarters that include fairness grocerys which facilitates companies from across the globe to fix gravid (London Stock Exchange, 2005).thither atomic number 18 the four primary commercialises that include The chief(prenominal) Market, Alternative Investment Market ( mark), Professional Securities Market (PSM) and Specia tip origin Market (SFM). Lon don Stock Exchange is a highly active market that provides figure of duty work including trading in a range of securities as for example, UK and international equities, debt, c e rattlingwhereed warrants, exchange traded caudexs (ETFs), Exchange Traded Commodities (ETCs), REITs, fixed interest, contracts for difference (CFDs) and depositary receipts (London Stock Exchange, 2005). It provides market data entropy with clarity offering real-time prices, news and otherwise fiscal study to the global financial community. EDX London, established in 2003serves as a study contributor to derivatives business in commit to bring the cash equity and derivatives markets closer together the London Stock Exchange.1.2 site AN OVERVIEWLondon Stock Exchange reviewed the unlisted securities market in1993 during the middle of a recession and mulish to close it. Quoted Companies Alliance now referred as CISCO was then natural and which lead to the establishment of Alternative Investment Mar ket in June 1995 by London Stock Exchange. With its noticeable endurance for several years read has been a considerable success. Rapid growth has been observed in cause market, commencing its operation in 1995, it has rose all everyplace 24 billion and listed over 2,200 companies, including 276 foreign companies by January 2006 listing1,408 companies from 33 industrial firmaments out of which 220 were from overseas countries. kind of of offering trades to the public sets 90% of flotations depends on placing the shares with first appearances, venture swell trusts and closed-door investors reinforced by European 191 Prospectus Directive (Thronton, 2009). In order to reduce the pool of capital available to buy new carry shares, the European 191 Prospectus Directive enquires that, a full prospectus mustiness be issued in about(prenominal) conditions where the compevery offers shares to more(prenominal) than 100 persons, other than qualified investors or if a private cli ent broker hint such shares to more than 100 of their clients (Thronton, 2009)..Based in the city of London, address benefits from competitive supply of leading financial services and decently offers take away access to out surface and sophisticated shareholders. ride has the potential to provide with each the significant financial services as required by the firm for listing, floating, reporting, auditing, broking, public relations, security analysis, printing, legalities, registering shareholders, etc. Rising higher from a function of 35.2% in September 2003, the institutional investors owned 40.9% by prize of the shares listed on develop in September 2005(Growth Comp whatever Investor, 2005), that consequently accounts for a very substantial institutional contribution of generate, in little(a)-capitalisation market.1.2.1 mart surfaceThe multitude of companies traded on take on come from different parts of the world and signify huge number of industries. At present th ere are approximately 1500 companies from more than 26 countries that are quoted on the forecast (London Stock Exchange, 2005). There is one common trait shared by all traded companies on set about and i.e. a dynamic corporate attitude and a strong ambition for business expansion. AIM welcomes companies of change sizes to become part of even though it was primarily knowing for smaller firms, but companies of varying sizes if possessing a desire for growth and profitability, are equally encouraged to fall in the Alternative Investment Market.1.2.2 OPERATIONSThe operations of AIM are controlled by the London Stock Exchange, having a tendency to work ideal for companies with a capitalization and valuation from $20 million to $300 million. The be for filings and submission are approximately $600,000, with ongoing annual bes of around $100,000. The range of capital- top activities tends to be in between $4 million to $40 million with approximately 9 percent average terms of cap ital. The percentage of retail investment funds is higher than on the official list and the investors are by and large institutional.1.2.3 KEY STATISTICSTable 01AIM1,635UK1,331external304AIM Market capitalisation94.4 BillionAIM initial offerings in 2006278UK201International77Capital gear upd(a) since 1995*40.1 BillionCapital raised in 2006*15.7 BillionUK10.3 BillionInternational5.4 Billion* New listings and further capital raises1.2.4 DIVERSITY AND INTERNATIONAL belongingsAIM has a assorted market spanning (Figure, 02) in approximately 39 sectors having a number of international companies and investors. The AIM is comprised of key sectors in which there is resource sector that include mining and oil gas, financial sector includes real estate, equity investment instruments and general financial. The industrial sector of AIM is comprise of construction materials, electronic electrical equipment and support services whereas, the consumer services includes media and travel leisu re. Apart from US the growth in international companies on AIM is as well as being impelled through Canada, China, India and main(prenominal)land Europe.1.2.5 MARKET capitalizationAccording to LSE statistics the international companies listed as UK Top Co are counted as domestic. The US investors 330 international companies are listed with a value of 36.6bn alike to $73.5bn and over 70 US companies listed on AIM has a value of 2.9bn that is equivalent to $5.8bn (London Stock Exchange, 2005).It is interesting to note that the international companies on AIM are larger than UK companies, with an average market capitalisation at 31 declination 2007 of 99.2 million compared with 46.9 million for UK registered companies. The market capitalisation on Alternative Investment Market is expressed in the Figure, 03. It is important to signify that AIM is not subject to more extensive regulation and therefore, it offers a wider pool of investors, and this whitethorn result in some decline in the cost of capital (Errunza and Miller, 2000).CHAPTER II LITERATURE REVIEW2.1 INTRODUCTIONEstablishing itself as the worlds most boffo growth market after being lanceed by the London Stock Exchange (LSE) in 1995, AIM provides opportunity to raise capital and a liquid market place to trade shares for small and medium sized growing companies. Over 3000 small growth companies have listed on AIM and these companies have raised a total of over 60 billion, since the graduation exercise of AIM. Global recession has caused complicated market conditions however there are still some signs of recovery, such as the first major IPO of the year and on the other hand mitigatement can be observed in trading scripts and average meanwhile, an improvement in fund raising conditions towards the end of 2009 and through 2010 is also predicted by the brokers and other market commentators (Thronton, 2009). In order to conserve its position in the market AIM has to become accustomed with current ma rket conditions, while not losing slew of its roots and emerge as a market focused on providing growing companies with direct access to capital (Thronton, 2009). The main objective of the literature review is to summarise the existing research work to gain insights on the subject area and also to assess and explain the impacts of recession. The core ingredient of the research is to conduct an empirical study of the relative volatility, analysis of market size, allowance and liquidity ratios of AIM and determining its rate of progression during stinting commotion.2.2 AIM- FACTS AND FIGURESThe AIMs trading began on 19 June 1995 and there were and 10 companies listed on the first day of trading. Since the opening of the Third Market in 1987, AIM was Londons first new market and it is split into two indices, the AIM 50 and AIM 100 Index where AIM 50 includes the biggest names on the junior market by attracting fresh, budding and newly expanding firms which were incapable for introdu ction to the main FTSE lists (London Stock Exchange, 2005). Even after facing literary criticism for the costs by some experts the market succeeded in making it easier for smaller businesses to raise capital. In accordance with the rules by AIM, the alliances costs rose up to 20 time higher in comparison to the earlier system. Notwithstanding the cost of raising capital was approximated to be an average of about 100,000 for an AIM company, as compared to 1m for a company on the main market (London Stock Exchange, 2005). There are now 1,276 AIM-listed companies. Liquidity among AIM stocks widely varies and the stocks having highest capitalisation and the largest destitute float represent comparable liquidity levels to the main market. There are a large number of illiquid stocks on the lower end of the market. AIM provides different trading platforms for different types of stock in order to improve the liquidity of the market but its volatility is not significantly diverse than oth er markets.2.2.1 STOCK TRADINGLarge and frequently traded stocks are listed on AIM and there are small, infrequently traded stocks also listed with it therefore no single trading mechanism is applicable to AIM stocks. Considering the time from the institution of AIM, it has exhibited very speedy growth in trading volumes (London Stock Exchange, 2005) as represented in Table, 02. The average annual growth rates over the stoppage of a decade starting from1996 to the year 2005 are as follows the turnover was around 36% number of trades was 28% and the number of shares traded were 35% approximately. The average number of shares per trade grew by 5% per year, whereas the average value per trade grew by 6% per year, over this period. The growth of trading on AIM occurred in two phases. There was a substantial fling in stock market prices observed during 2001- 2002 where there was negative volume growth which gradually recovered in the year 2003 followed by rapid growth of trading.2.2.2 UNDERSIZED REGULATORY LOADAIM regulations are designed to reduce burden for companies listing on this exchange. The portal answer for AIM takes about three months, depending on circumstances (Audley, 2005) and in order to list on AIMThere is no need for trading temper and on the spot listing of start-ups and cash shellsSmaller companies can also list as there is no minimum market capitalizationReduced costs and time for listing as the live withtance documents are not pre-vetted by AIM or the U.K. Listing AuthorityThe inadequacy of a minimum free float for preventing firms to sell off a substantial part of the business to list in AIM applause from prior shareholder is not required for acquisitions that also reduces the time and cost of acquisitions.There is an obligation to employ a Nomad at all times for each AIM-listed company. The Nomads carry out three main functionsTo make a decision that if a company should be admitted to AIM or notManaging the floatation process andAdvic e the company regarding rules, before and after it has been listed.2.2.3 COSTS FOR LISTINGSThe admission fee of AIM is 4,180 with a listing fee of 4,180 per year and a value-added assess revenue to these admission and annual fees is applied to UK companies. The total costs of admission to AIM are about 350,000 to 450,000 and a brokers fees of 3% 6% of any funds raised (Audley, 2005). Nomads are liable to to a lower placetake most of this process followed by any subsequent capital-raising and this keeps admission and listing costs under control.The costs to the firm of listing on AIM includeThe initial costs to obtain the listingFollowed by initial floatations costs of any subsequent capital raising andThe annual costs of maintaining the listing.2.2.4 THE MAIN MARKETLondon Stock Exchange is one of the worlds leading stock exchanges and AIM offers a great deal of progression to it and vice versa. During a period of January 2000 to December 2004, a total of 160 companies switched b etween AIM and the main market. About 81% went from the main market to AIM and almost 19% went from AIM to the main market concluding that out of every company graduated from AIM to the main market, four moved in abate course (Dufour, Sutcliffe and Wells 2005). In accordance with a survey (Baker Tilly, 2005b) 17 firms moved from the main market to AIM and their reason (Table, 03) for moving as constituted by the survey wereLess regulation53% more Flexibility41%Less Expensive24%Tax Benefits12%Suitability12%Table 03Furthermore, the survey (Baker Tilly 2005b) reveals that 64% of the main market companies considered moving in and back to AIM, out of which 26% actually be after to move whereas the rest of 34% companies considered it beneficial due to lack of provisional parameters, trouble-free acquisitions, greater flexibility and tax advantages.2.2.5 TAXATIONThe following areas of tax relief are available for individual investors in U.K. companies listed on AIM (Baker Tilly, 2005a)Th e business asset taper relief tends to minimise the effective tax rate of capital gains tax up to 40% 10%. In gift relief a capital gains tax is overdue until a subsequent disposal by the recipient.Investment in AIM trading companies leads to indemnity from inheritance tax.Enterprise investment scheme offers relief from both income tax and capital gains tax. From the initial investment in new AIM shares about one fifth of the cost can be even out against income tax. In addition any capital gain is exempt from capital gains tax, while any capital loss (less the 20% income tax relief) can be offset against capital gains elsewhere.Investors are exempt from tax on dividends from the Venture Capital Trusts, and capital gains on their shares in the VCT. Investors also fulfill an initial income tax relief equal to 40% of their investment in new VCT shares.2.2.6 REQUIREMENTS AND LISTING PROCEDURECompanies listed on AIM have to state a nominated adviser to serve as their sponsor or repre sentative and is responsible to prepare the prospectus in order to admit the issuer for trading on AIM. The function of a nomad is to assists the company in raising its initial capital provide market making and research for the issuers stock with the help of its brokerage and research departments. The contractual activities and correlation between the issuer and its nomad extends well beyond the initial public offering. Nomad remain active even after the initial listing on AIM so that a small issuer does not end up being left alone in a stock market crisis. New rules and regulations were instituted both for nomads and companies listed on the AIM exchange, in Feb, 2007. To provide further guidance and to illuminate the regulatory issues concerning disclosure requirements the rules for nomads and companies were put into practice. Although the changes to AIM rules are evolutionary rather than revolutionary, Nomads should not under-estimate the Exchanges fierceness on the responsibili ty of nomads for preserving the reputation and integrity of AIM (Audley, 2005).2.3 ASSOCIATED RISKS AND BENEFITSThe listing surgical operation is much more simplified in London Stock Exchange as there is no regulatory authority in the UK so it becomes the responsibility of the sponsoring nomad as a result of which the complete process becomes comfortably quicker and inexpensive. The prospectus discloses all information that an investor needs for making an conscious investment decision and its less comprehensive in most cases where the SEC-filed adaptation statement and the review process, for the most part, is absent (Audley, 2005). Therefore, the SEC governmental review process of the prospectus, the massive amount of periodic regulatory filings and compulsory financial reporting needs are eradicated by listing on AIM. The acclivitous growth companies are offered with very greater options by eliminating the need for underwriters that are only interested large deals so a great n umber of foreign companies are flocking to AIM (London Stock Exchange, 2006). Listing on AIM gives an emerging growth company the opportunity to go public and raise capital for reasonable fees and under reasonable terms and conditions.AIM rules require not only a nominated broker but also a nominated adviser. There were companies on AIM which caused regulatory nerves and the big guns at the DTI, Treasury and Stock Exchange focused their decree on nominated advisers. This had a knock-on effect on costs. Nominated advisers define off their responsibilities on solicitors and accountants who duly reproduce and costs shoot up (London Stock Exchange, 2006). Professional advisers, anxious to minimise the risk of adverse criticism by the regulatory authorities, are now applying Official List standards. This has driven costs up and has damaged the purpose of AIM (London Stock Exchange, 2006).2.4 pecuniary AGITATION AND AIMEconomic recovery is gradual but pursuant(predicate) followed by the recession that hit the stock markets worldwide and for London Stock Exchange, particularly AIM market there is a need for investment by small companies. The number of companies quoted on AIM, which is the London Stock Exchanges Alternative Investment Market, is now just 1,276 compared with more than 1,600 in the year 2007, which constitutes that, more than one company a day delists from AIM throughout give out year (Northedge, 2010). It is also noticeable that notwithstanding the soaring share prices up to 66 per cent in the year 2009, outperforming the main stock market, only 36 new companies joined AIM. It is the lowest annual total since the launch of AIM in1995 and a tiny fraction as compared to the joining of 462 companies that in 2006 (Northedge, 2010). About 290 companies delisted compared with 218 in the year 2008, and others have been liquidating their assets and returning the proceeds to shareholders. describe by (Wachman, 2009) in Guardian, The number of companies h aving a capital under 5m or 10m has halved within two years and approximately two-thirds of AIMs companies are capitalised at less than 25m and almost10 per cent are valued at below 2m. Despite share prices falling, the delisting of the small firms has become a basis for the average AIM Companys friendship twofold to 43m since the year 2006. The continued loss of small firms from AIM and some Britains top 200 companies remain there give rise to a fear that AIM will become another version of the main market leaving no alternative for smaller businesses to be quoted. That is already making it harder for small firms to raise capital to invest in Britains sparing recovery (Northedge, 2010).