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
Hi Mary,
It depends on how you measure it, of course. In other words, which stock market index do you want to use to measure a peak. But, in general, most of the indices in the dot.com era peaked in the fourth quarter of 2000. This is a full three years after the start of the decline in equities in the U.S.
Cheers!
Jason
If we look at the quantum of listings as a function of supply/demand, it appears that stocks are cheap; otherwise, the supply would be abundant and growing (or is it sufficiently abundant already and it was excessive earlier?). Using Barbara Petitt's observation, shares are not priced well enough (comparing to debt perhaps?) to be useful as a currency for acquisitions.
Hello Yves,
Thank you for sharing your viewpoint on the issue. I would appreciate hearing more of the details of your thoughts.
While I think that supply and demand is a useful mental model, I also think that when applied simplistically the outcomes become less descriptive. Here I am referring to the fact that demand for stocks is fairly easily had: I have 40 euro and I want a share, therefore I open an account and place a buy order. Whereas, to supply stocks to the marketplace incurs massively disproportionate costs on the supplier, relative to those that would demand the same stock. Given that there are such asymmetric costs at play I think any rich analysis using supply and demand has to factor in the benefits vs. costs of supplying stocks. Given the declining supply, I think one would have to conclude that the costs, relative to the benefits, must be on the rise. Or, put in the most affirmative way possible, the acceleration in the benefits of supplying stocks is not keeping pace with the acceleration in the costs of supplying stocks.
With smiles,
Jason
I don't have any hard data, but it is my impression that with the significant costs of going public and being public combined with the disappearance of a lot of the small regional underwriters across the US, the market cap hurdle to go public is simply way too high for most private companies. It seems to me they end up with private equity or remaining private.
Hi Jay,
Many of my friends would agree with you. I would also add that many regional commercial banks now finance larger private companies better, as well. Whatever the cause, I think there is an interesting story here.
Thanks for your comments!
Jason
If you look at long term asset allocation, public equity investment has generally suffered at the expense of alpha products, real assets, and private equity. Page 10 of the 2010 Yale Endowment annual report provides a stark example.
If the best companies no longer want to go public and/or the best investors no longer spend as much time in the public markets, we have a tiered investment world where only the richest have access to the best ideas. That does not sound like good public policy; on the other hand, I am not sure if restricting the development of non-public equity markets is a prudent one either.
Will the public markets become anachronistic in our investment time frame? Is that a positive or negative development for investors and society?
Hello Kouji,
Very interesting points all, and thank you for sharing them with the audience.
Point for clarification: are you referring to U.S. public companies, or companies globally?
Global GDP marches onward so capital formation and returns on capital are still happening. Further, global GDP growth is roughly in line with historic GDP growth. Are we in an era, with nearly ubiquitous information where the public traded company is, as you said, anachronistic?
Feel free to share more of your thoughts!
Jason