The Role of Second-Tier Exchange in Corporate Valuation: Evidence from Korea*

Using data from Korea, we show that the second-tier exchange-also known as the entrepreneurial market-assigns higher valuations to growth-oriented (i.e. small yet intangibles-rich) companies despite their low profitability. Such "growth" valuation is most pronounced among companies in an earlier stage of their life cycle as proxied by dividend payments (i.e. dividend non-payers). Further analysis confirms that the valuation in the second-tier exchange facilitates access to capital and investments-especially in intangible assets-by the early-stage growth companies who would not have made it to public equity markets without the second-tier exchange.