COMPANIES will increasingly bypass the Irish Stock Exchange and look overseas for funds unless new incentives are introduced to encourage private investment in the market, according to the Ad are finance director, Mr Peter Lynch. He has called for a range of measures including new tax breaks for investors.

"Unless significant energy is applied in the support of a private investment culture, companies will increasingly bypass the local stock exchange and go straight to the larger capital pools of London and the USA," he said, speaking at a Leinster Society of Chartered Accountants' lunch in Dublin yesterday.

Mr Lynch called for tax relief on money borrowed and then used to invest in quoted shares and an income tax break similar to the BES for those investing in primary issues.

He warned that if income tax relief was restricted to stocks on the proposed new Developing Companies Market, it would withdraw funds from existing second line stocks. He also called for the elimination of income tax on the exercise of share options, arguing it should only be payable when the shares were sold.

Mr Lynch warned that if new incentives were not introduced, then there would be "a stampede" as second line stocks - the smaller companies outside the top six - leave the market. Only four companies have listed in the last two years, he pointed out.

Institutional investors are not natural buyers of second line stocks, as they have a range of more liquid investments to choose from at home and abroad.