A fall in firms on AIM is a positive step

Underlying this is a marked change in the profile of companies. As the market has grown up, so has the size of the company.

The smallest, nano-cap companies in the range of up to £10m market capitalisation have halved over the last five years. This is a very positive move for the market, companies and investors.

And it’s important because some of the Yorkshire and Humber region’s best companies have moved to AIM and thrived.

In June 2009, there were 1,412 companies on AIM and in June 2014 there were 1,104, a fall of 21 per cent.

Most of the companies on AIM in both periods fall into the £10m - £25m market capitalisation range – 299 companies in 2009 and 220 in 2014, a fall of 26 per cent.

Above that range AIM had 433 companies in 2009 and now 512 in 2014, a rise of 18 per cent.

So the key change has been in companies with a market capitalisation below £10m. In June 2009 there were 662 such companies whereas in June 2014 there were 344, a fall of nearly 50 per cent.

Some of this is down to the improvement in the market generally; but, this also includes companies falling by the wayside financially, being taken over, being taken private or the fact that institutional investors either can’t or won’t invest in companies of this size.

Also many companies of this size are unable to afford the costs of being a public company.

So why do I think this is a positive step? Increasingly companies are being required to behave in a more communicative and socially conscious way.

Attached to this is an increase in the quality of information that is expected of them.

Investors, both institutional and personal, expect AIM companies to adopt standards of behaviour and governance that go quite a way towards emulating the practices of companies on the main market of the London Stock Exchange.

Corporate governance is not a box-ticking exercise – something we at the Quoted Companies Alliance discourage – but a framework for protecting the interests of investors, employees, customers and other stakeholders.

From August, companies on AIM will have to explain on their websites which corporate governance code they have adopted and how they comply with it; or if they haven’t adopted a code they will have to explain their corporate governance arrangements.

The Quoted Companies Alliance’s Corporate Governance Code for Small and Mid-Size Quoted Companies has attracted a lot of interest from companies as a result. Companies are reviewing how they structure themselves and how they communicate this to shareholders.

This comes at a cost; but it is one of the valid costs of raising equity capital which public companies, including those on AIM, should be more than willing to pay.

The smallest companies may find it difficult to accommodate this additional requirement, but it is just a more overt way of requiring what any effective public company is already doing.

There has to be a high level of trust between companies and investors. Communication of strategy, business model, structures and behaviours are key to engendering and maintaining that trust.

Perhaps there is a minimum size of company that can do this effectively in the public markets.

It looks like, over the last five years, that AIM has been moving towards it.