Working Paper: NBER ID: w24265
Authors: Craig Doidge; Kathleen M. Kahle; G. Andrew Karolyi; Ren M. Stulz
Abstract: Since reaching a peak in 1997, the number of listed firms in the U.S. has fallen in every year but one. During this same period, public firms have been net purchasers of $3.6 trillion of equity (in 2015 dollars) rather than net issuers. The propensity to be listed is lower across all firm size groups, but more so among firms with less than 5,000 employees. Relative to other countries, the U.S. now has abnormally few listed firms. Because markets have become unattractive to small firms, existing listed firms are larger and older. We argue that the importance of intangible investment has grown but that public markets are not well-suited for young, R&D-intensive companies. Since there is abundant capital available to such firms without going public, they have little incentive to do so until they reach the point in their lifecycle where they focus more on payouts than on raising capital.
Keywords: No keywords provided
JEL Codes: G18; G24; G28; G32; G35; K22; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decline in the number of listed firms since 1997 (G34) | Eclipse of the public markets (G19) |
| Young, R&D-intensive firms opting for private funding (L26) | Decline in the number of listed firms (G34) |
| Growing importance of intangible assets (O34) | Decline in the number of listed firms (G34) |
| Disappearance of smaller firms from public exchanges (G34) | Increase in average market capitalization of listed firms (O16) |
| Decrease in propensity of firms to list (G34) | Shift in market dynamics favoring larger, older firms (L25) |
| Increase in importance of R&D relative to capital expenditures (O32) | Transformation in the nature of public companies (G38) |