The US has a yawning deficit in the number of publicly traded companies. Since 1996 the odds that a firm was publicly has been falling. Below you can see the abstract from a NBER working paper by Craig Doidge, G. Andrew Karolyi and Rene M. Stulz.
The U.S. had 14% fewer exchange-listed firms in 2012 than in 1975. Relative to other countries, the U.S. now has abnormally few listed firms given its level of development and the quality of its institutions. We call this the “U.S. listing gap” and investigate possible explanations for it. We rule out industry changes, changes in listing requirements, and the reforms of the early 2000s as explanations for the gap. We show that the probability that a firm is listed has fallen since the listing peak in 1996 for all firm size categories though more so for smaller firms. From 1997 to the end of our sample period in 2012, the new list rate is low and the delist rate is high compared to U.S. history and to other countries. High delists account for roughly 46% of the listing gap and low new lists for 54%. The high delist rate is explained by an unusually high rate of acquisitions of publicly-listed firms compared to previous U.S. history and to other countries.
Cardiff Garcia at FT Alphaville has a post up looking further at the two reasons the above authors cite for the declining number of publicly traded companies. First the reluctance of US companies to go public and the second the high number of delistings that occur due to merger and acquisition activity.
Then again none of this exactly new news. Back in 2011 Felix Salmon at Reuters noted this phenomenon and the US as outlier. I also weighed in on the topic at the time. What is notable is that this trend has pretty much continued on unabated. Last year in a post I noted how open-end mutual funds from investment giants like T. Rowe Price and Fidelity have been loading up on shares in so-called pre-IPO companies. The hope being their investors capture some of the value from when they buy these shares and the companies eventually go public.
Not only are the number of public traded companies going down so are the opportunities in those companies themselves. It is expected that in 2015 US companies will return some $1 trillion to investors via dividends and share buybacks.
Just as the number of publicly traded US stocks has decreased their turnover has increased. Ben Carlson at A Wealth of Common Sense has some thoughts on how this combination of fewer companies, traded more frequently plays out for the average investor. Carlson writes:
The one thing that stands out to me from these numbers is that there are now more investors than ever out there chasing fewer and fewer stocks, but trading them more often. The logical conclusion is that this increase in activity and competition for good ideas has made it more difficult for portfolio managers to separate themselves from the pack and add value.
This is likely playing out in the world of hedge funds where a small number of now huge hedge fund organizations are chasing a smaller number of domestic opportunities. This in one reason why we see hedge funds doing more private investments, overseas investing and expanding into more exotic strategies and tactics. This may also be a reason why equity crowdfunding is gaining traction among investors. Absent a sustained surge in IPOs, and given how long this trend has gone, on it is entirely unclear what would turn around the secular decline in US equity listings.