Factors influencing the number of new listings/IPOs in Sweden
Paper presented to the Policy Committee of ecoDa, January 2022
According to the EU Commission’s report “Primary and secondary equity markets in the EU” Sweden has had a unique development of the number of new listings/IPOs between 2010 and 2018 compared to all other member countries, except for Poland. What are the reasons behind this development? In this paper I will try to present the most important factors that to various degrees have caused the rapid development of new listings in Sweden’s four main equity markets: NASDAQ Stockholm, NASDAQ First North, Nordic Growth Market (NGM) and Spotlight Stock Market.
Number of Companies Listed on EU-28 Stock Exchanges
Market End 2010 End 2018 Net % change
NASDAQ Stockholm 222 290 +68 +31
NASDAQ First North (MTF) 92 265 +173 +188
Nordic Growth Market (Reg/MTF) 26 117 +91 +350
Spotlight Stock Market (MTF) 124 166 +42 +34
Subtotal Sweden 464 838 +374 +81
London Stock Exchange 1 817 1 439 -378 -21
EU-26 Stock Exchanges 5 111 4 261 -850 -17
Total EU-28 7 392 6 538 -854 -12
Euronext Paris (-129) and Frankfurt Stock Exchange (-240) lost a substantial number of companies while Warsaw Stock Exchange (+232) and Borsa Italiana (+52) managed to list 384 more companies. After 2018 the positive development continues for the Swedish market.
The following list of factors influencing the number of new listings in Sweden is based on interviews with Fredrik Ekström, CEO NASDAQ Stockholm, Peter Gönczi, CEO Spotlight Stock Market, Fredrik Nordström, CEO Swedish Investment Fund Association and Peter Rönström, Partner Lannebo Investment Funds as well as the author’s own experience of having been a member of the board of three stock exchanges and CEO of the Swedish Shareholders’ Association 1984-2006.
1. A STRONG INVESTMENT/SHAREHOLDER CULTURE
—There are 2.6 million individual shareholders in Sweden representing 85% of all owners in the market and 12% of total market capitalisation.
—Seven out of ten adult Swedes save in investment funds. 85% of the savings are allocated to equity funds with a significant overweight invested in Swedish equities. Equity investment funds represent 12% of total market capitalisation.
—Low barriers of entry make it easy for individual investors to get access to markets via online brokers with more than 2 million customers.
—Individual investors are experienced and are well informed about the markets and companies.
—The Swedish Shareholders’ Association (founded 1966) with 70 000 members is defending their members’ rights and interests and provides their members with information and education via its web site, monthly magazine and in approx 700 local meetings per year all-around Sweden.
—The Swedish Foundation for Share Promotion (founded 1976) informs in physical meetings every year more than 25 000 high school students why it is important to take care of one’s private economy and invest for the future in stocks and investment funds.
—Almost all banks and insurance companies with a retail strategy have their own “saving economist” or “household economist”. As spokespersons they provide general guidance to individual investors and comment on actual developments in the financial markets in social and traditional media.
—Deregulation of public pensions with the Premium Pension System where 2.5% of your salary is invested in investment funds of your choice has increased knowledge and familiarity of investment funds. Also in supplementary pensions schemes the possibility to invest in Unit Linked Insurance has been introduced for well over 20 years ago.
2. TAX POLICY STIMULATING INVESTMENT IN STOCKS AND FUNDS
—Introduction of tax-subsidised savings in investment funds 1978-1997 started a broad public interest to invest in funds.
—Since 2005 and 2007 inheritance tax and tax on wealth no more exist.
—The introduction of investment saving accounts (ISK) in 2012 has been a great success. Today there are more than 3 million accounts. Instead of paying tax on your profits, interest and dividends you pay a yearly tax of 0.375% of the average value of your holdings in your account. This means that you as an individual do not have to declare gains or losses on individual share trades, which reduces the administrative burden for households to invest in financial assets.
3. WORLD CLASS MARKET PERFORMANCE
—According to Credit Suisse NASDAQ Stockholm has been the best performing stock market in the world, 9.5% in real terms including dividends 1966-2020. World average was 6.0%. Certainly, this is a factor contributing to making Swedish investors more inclined to invest in stocks.
4. SUCCESSFUL COMPANIES
—The market’s performance clearly indicates that Swedish large cap companies are well governed and well managed. Many of the main owners are families and/or investment companies who take on the responsibility to operate their companies over decades in a long-term and sustainable way. To grow, internationalisation has been a must for these companies, thus enabling them to grow faster than the Swedish economy.
5. ENTREPRENEURIAL AND INNOVATIVE CLIMATE IN THE REGION
—Sweden is said to have the highest number of unicorns per capita in the world.
—Positive climate for entrepreneurs and innovations have generated a steady flow of new start-ups in industries like fintech, biotech, gaming and even in the music industry.
—Under its specific market considerations Swedish corporate law allows for shares with multiple voting rights (for insiders, and in a context of sound minority investors’ protection rules). This rule is often crucial for the entrepreneurs’ willingness to list their companies. Shares with multiple voting rights enable the entrepreneur to retain power in the company, providing an incentive to remain committed to the company even after listing.
6. PUBLIC TRUST IN EQUITY MARKETS
—Corporate law includes strong minority protection rules and a distinct division of duties and responsibilities between the shareholders, the board of directors and the management.
—Rules and regulations are often based on self-regulation. There are four self-regulation bodies supervising the rules and the listed companies.
—The Swedish Corporate Governance Code is well accepted by the listed companies and is monitored by the Corporate Governance Board, one of four self-regulating bodies.
—News media and the Swedish Shareholders’ Association watches the market closely, especially new listings/IPOs and by visiting companies’ general meetings.
7. FINANCIAL ADVISORS AND INVESTMENT FIRMS PLAY AN IMPORTANT ROLE
—More than 30 small and medium sized investment firms and a number of financial advisors play an important role in facilitating for companies in their challenging listing process. They are also important as sellers of the benefits of listings.
Each of these seven factors play an important role, to what extent is impossible to say. However, as the most important reason for getting listed is to acquire capital factor 1 is probably crucial. Without all the capital provided by the individual shareholders, it would not be possible to finance IPOs for all the small companies entering the market. Institutional investors are often prevented from investing in those companies or else they are too small to make any difference in performance for an institution.
Finally, it deserves to be emphasised that new listings do have a positive effect on society. Nasdaq has performed a study based on data from 2014 to 2019 covering 3 648 Swedish companies, either listed on First North Stockholm or not listed, with a turnover between 1 and 50 million euro. The results of the study show that the performance of listed companies is much better than that of unlisted companies: average annual growth in the number of employees is 10.6% compared with 3.4%, and sales growth is 14% compared with 7%.
Stockholm January 18 2022
Lars-Erik Forsgårdh, PhD Finance