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.
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27 Comments
My opinion is that this is due to increased capital raising in private placements of unregistered securities. Read the SEC Final Rule release for the allowance of general socititation of unregistered securities under Rule 506.
Hi Brandon,
To ensure that I understand you correctly, are you referring to the U.S. data specifically, or to the entire global data set? If to the U.S. you may be right, but I am not sure how the SEC Final Rule release for Rule 506 would affect a decline in listings in Madagascar.
With smiles,
Jason
Yes, I should have been clearer. I was referring to the U.S. only.
Exempt offerings play a significant role in capital formation in the United States. Offerings conducted in reliance on Rule 506 account for 99% of the capital reported as being raised under Regulation D from 2009 to 2012, and represent approximately 94% of the number of Regulation D offerings.190 The significance of Rule 506 offerings is underscored by the comparison to registered offerings. In 2012, the estimated amount of capital reported as being raised in Rule 506 offerings (including both equity and debt) was $898 billion, compared to $1.2 trillion raised in registered offerings.191
http://www.sec.gov/rules/final/2013/33-9415.pdf
Hi Brandon,
Thank you for summarizing some of the important information about Rule 506 - it sounds as if you work for an underwriter. Thanks too for the SEC link.
With smiles,
Jason
Could it be that issuers no longer need IPOs to reach their objectives? We often assume that IPOs are about raising funds, but research by Brau and Fawcett (“Initial Public Offerings: An Analysis of Theory and Practice”, Journal of Finance, 61(1), February 2006, pp. 399-436) shows that this is not the number one motivation for most companies. Having a currency to make acquisitions and being more visible are key motivations behind IPOs. Companies are more cautious about making acquisitions thee days, and they now have other (and perhaps better and cheaper) ways to achieve visibility. So perhaps they no longer need IPOs as much as before?
Hello Barbara,
Thank you for sharing the paper above and your thoughts. I agree that this rationale is a part of the story about the decline in stock listings.
With smiles,
Jason
very interesting research. I would opine that the cause is a combination of most or all of the causes you listed, altogether magnifying the data you gathered. personally, i think, on the one extreme, regulation has had a material impact at least on the US, and yet, to the other extreme, lack of regulation and the presence and seeming increase in graft and corruption also has something to do with it. Globally, politically, we have seen a trend toward soft socialism and/or statism in many developed countries including the US. We know these trends to have a quelling effect on free markets. These are observations i feel i have noticed in recent years
Hello Vernon,
If I hear you correctly you are saying you see a regulatory continuum at play here, with one side bounded by too much regulation, and the other side bounded by too little regulation; and both extremes lead to a decline in equity listings. Did I get that right?
Regarding the move to statism. I wonder if you would mind sharing when you believe that started happening. We could then compare that to the data.
Thanks again for sharing your point of view with readers.
With smiles,
Jason
When did dot.coms peak?