Post-listing performance and private sector regulation: The experience of London's Alternative Investment Market

•We investigate the post-listing experience of companies raising capital on London's Alternative Investment Market (AIM).•AIM is privately regulated and relies on Nomads who compete to bring new listings and provide regulatory oversight.•AIM firms significantly underperform firms on regulated exchanges in terms of post-listing returns and failure rates.•Underperformance is associated with abnormally high pre-listing accruals and more pronounced for firms raising capital.•Choice of a “high quality” auditor or Nomad partially mitigates underperformance relative to regulated exchanges.

We investigate the experience of companies listing and raising capital on the AIM, which is privately regulated and relies on Nominated Advisors who compete for listings and provide regulatory oversight. AIM firms underperform newly listed firms on traditionally regulated exchanges based on post-listing returns and failure rates, comparable to firms listing on the unregulated US Pink Sheets, and exhibit abnormally high pre-listing accruals and post-listing reversals. “High quality” auditors and Nomads partially mitigate underperformance, suggesting that AIM firms have limited ability to bond through more stringent oversight. Underperformance is particularly pronounced for firms with higher proportions of retail investors.