The decline in stock listings in the United States has been well documented by industry professionals and the media alike. Based on my own calculations, though, commentators seem to be missing a larger and potentially more alarming story: Equity listings worldwide, not just in the United States, have dropped precipitously. The data thus fly in the face of a bedrock belief about capitalism and free markets: that one of the strengths is the ease with which new enterprises can fund themselves through public equity listings.
Threading the numbers together takes a bit of work. Based on data covering 142 stock exchanges since 1975 that I compiled from multiple sources, including the World Federation of Exchanges, University of Houston, University of Virginia, Journal of Finance, and CFA Institute, I estimate that the number of global stock listings is down by 16.8% since peaking in 1998. More specifically, the number of global equity listings stood at just 46,674 at the end of 2012 after peaking at 56,119 in 1998.
The data show that equity listings have declined in every major region, including the United States, Europe, and Asia Pacific:
- In the United States, total stock listings peaked at 9,253 in 1997 and declined to a paltry 4,916 at the end of 2012 — down by an astonishing 46.9%!
- Europe’s equity listings peaked in 2007 at 14,008 and stood at 10,844 at the close of 2012 — a decline of 22.6%.
- In the Asia-Pacific region (including Australia), equity listings have only fallen 4.7% to 15,169 from a 2010 peak of 15,909. Yet it is still a drop.
Even in smaller markets, the number of equity listings has dropped dramatically — from India and the surrounding countries to the Middle East and North Africa to Russia and Central Asia to Sub-Saharan Africa. In fact, if you exclude the growth in equity listings in the Americas (not including the United States) and Asia Pacific, the decline in equity listings for all other regions averages 48%.
Number of Equity Listings (1975–2012)
What explains this mystery? Is it the decline in the number of initial public offerings? Could it be an increase in the number of corporate bankruptcies? How about an increase in the number of mergers and acquisitions taking equity listings off stock exchanges? Or perhaps the decline in stock listings is a result of the recent trend of businesses taking themselves private? Of course, the decline of equity listings could well be a combination of all of these factors.
One reason that has been put forward to explain the decline in the United States simply does not hold water. Namely, that onerous regulation has led to capital flight. If so, the data counter that claim, as listings are definitively down globally and in every region. In fact, the decline in public equities is unquestionable and should be a grave concern to both investors and policy makers alike.
Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.
Photo credit: ©iStockphoto.com/DNY59
27 Comments
This is very interesting data point.
Hi Biharilal!
I agree! Would you mind sharing what you found interesting about it?
With smiles,
Jason
Very interesting, especially from a valuations standpoint.
Hello Matt,
Are you saying it is interesting data from the point of view that a lower supply of shares to invest in, along with fixed or increasing demand would equal a price increase in stock market levels? If so, yes, I agree this story may help to explain increasing stock market valulations.
With smiles,
Jason
Yup - exactly what I meant. It will be interesting to see how the decline in liquid investments are impacted by baby-boomers drawing on their capital over the next 10 - 20 years. Curious if savings rates among young adults are enough to counter over time.
Hi Matt,
Thanks for clarifying.
I have a somewhat unusual take on the liquid vs. illiquid discussion. Namely, that when most people talk about liquidity they are talking about principal liquidity. Yet, there is also 'return on capital' liquidity, too.
For example, when Twitter goes public it will have principal/share price liquidity, but it will be years and years until individual investors are paid a dividend/return on capital liquidity. When looked at in this way rental properties suddenly become a liquid investment as the rental income is received as cash even if it may be difficult to sell an individual property.
Another example, I have owned a convertible preferred stock for almost ten years. My yield on cost basis is 18%, I received my entire principal back in the form of dividends several years ago, even though the convertible preferred security itself is 'illiquid.'
One final example. What about education? I will never be able to get my principal back, yet education is highly liquid as represented by my ability to get paid for what I know and my ability to get paid for teaching what I know. But is education a liquid asset?
Hopefully food for thought,
Jason
"In the United States, total stock listings peaked at 9,253 in 1997" & "Europe’s equity listings peaked in 2007 at 14,008" - these two points indicate that the peaking of the number of listings, on an uptrend, was cut down by the financial crises. So I believe it is the economic situation forcing companies' bankruptcy and the restructuring through M&A seems to be more likely reason. As for the companies taking a private route than being public should have resulted lesser growth rather than decline.
Thanks Jason for this lovely insight!
Hello Chethan,
Thank you for sharing your own insights with the readers. The first crisis in the U.S. was the dot.com bubble popping in late 2000, early 2001. The decline began a full 3-4 years prior to those dates. So not sure about the reasoning as it relates to the U.S. As it relates to European equities, what you describe may be true. Hard to say exactly for sure without going through the history of all of the decisions that led to the declines. I think your explanation may be a part of the story, though : )
With smiles,
Jason
Great piece of work, thank you for sharing. I am really surprised the trend is similar for emerging stock exchanges. It would be really interesting to know what are the specific reasons to better understand shifts in capital markets.
Hello Rémy,
I agree, it would be a very interesting area for possible research for someone: why have the number of stock listings declined so rapidly and globally?
Thank you for your interest in the piece!
Jason