Small firms are fleeing that US stock exchanges
Doidge and al. find that as of the end of 2016, the number of listed firms was 25% less than in 1975 and 52% less than its peak in 1997. They also find that it is the small firms that have left the exchanges increasingly and that this is largely a US phenomenon. A possible explanation is the shift from physical investment to R&D ie. investment in intellectual capital. More specifically:
If a firm is building a new plant, it is easy for it to disclose that it is doing so. Nobody can steal the plant. The same is not the case if the firm has an intensive R&D program. By disclosing details of that program, a firm gives away some of its ideas. Other firms can build on what they learn.
Eclipse of the public corporation or eclipse of the public markets?
Authors: Craig Doidge, Kathleen M. Kahle, G. Andrew Karolyi, René M. Stulz
From: University of Toronto, University of Arizona, Cornell University, The Ohio State University
The importance of “unicorns”
Bowen and al. provide a qualification to the Doidge and al. finding: they argue that private firms that can develop an independent market presence by creating new markets or disrupting existing ones with patented technologies are more likely to scale up through a public listing. But these firms are very few.
Technological Disruptiveness and the Evolution of IPOs and Sell-Outs
Authors: Donald Bowen, Laurent Fresard, and Gerard Hoberg
From: Virginia Tech, University of Lugano, Swiss Finance Institute, University of Southern California
…or is it the effect of deregulation?
The deregulation of securities laws in the 1990s—and in particular the National Securities Markets Improvement Act of 1996—has facilitated the process of raising capital privately and been a key driver of the decline in U.S. IPOs. Privately-held startups are now able to grow to a size historically available only to their public peers. The IPO decline is not a market failure in the process of going public. Rather, it is the result of founders taking advantage of their increased bargaining power and lower cost of being private to realize their preference for control by choosing to remain private.
The Deregulation of the Private Equity Markets and the Decline in IPOs
Authors: Michael Ewens and Joan Farre-Mensa
From: California Institute of Technology, Northeastern University