Working Paper: NBER ID: w16916
Authors: Craig Doidge; G. Andrew Karolyi; Ren M. Stulz
Abstract: During the past two decades, there has been a dramatic change in IPO activity around the world. Though vibrant IPO activity, attributed to better institutions and governance, used to be a strength of the U.S., it no longer is. IPO activity in the U.S. has fallen compared to the rest of the world and U.S. firms go public less than expected based on the economic importance of the U.S. In the early 1990s, the declining U.S. IPO share was due to the extraordinary growth of IPOs in foreign countries; in the 2000s, however, it is due to higher IPO activity abroad combined with lower IPO activity in the U.S. Global IPOs, which are IPOs in which some of the proceeds are raised outside the firm's home country, play a critical role in the increase in IPO activity outside the U.S. The quality of a country's institutions is positively related to its domestic IPO activity and negatively related to its global IPO activity. However, home country institutions are more important in explaining IPO activity in the 1990s than in the 2000s. The evidence is consistent with the view that access to global markets helps firms overcome the obstacles of poor institutions. Finally, we show that the dynamics of global IPO activity and country-level IPO activity are strongly affected by global factors.
Keywords: IPO; financial globalization; institutional quality; cross-country analysis
JEL Codes: F3; G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Quality of a country's institutions (O17) | Domestic IPO activity (G24) |
| Quality of a country's institutions (O17) | Global IPO activity (G24) |
| Weaker institutions (O17) | Higher rates of global IPO activity (G24) |
| Domestic and global market conditions (F69) | Dynamics of global IPO activity (F44) |
| Access to global markets (F69) | Overcoming obstacles posed by poor home country institutions (O17) |