Like household income in the United States, subtle changes have concentrated economic clout in a much smaller group of companies at the top of the stack. Fewer companies control half of the net income, assets, cash, cash flow, dividends and total payouts than did a few decades ago — for example, 89 companies accounted for half of income in 1995, but in 2015 just 30 made up the same percentage.
"Fewer firms are public," said Ohio State University's Rene Stulz, who co-authored the new paper with Kathleen Kahle of the University of Arizona. "That's a problem for investors because, while they can easily invest in public firms, they can't in nonpublic firms. Few employees have access to investments in private firms through their 401(k)."
The problem isn't simply that fewer companies are opting to make initial public offerings in the first place. There has also been an increase in the number of firms that are delisting, often because the biggest firms have scooped them up in one of the recent waves of merger activity, according to another working paper written by Stulz and others. As smaller companies exit public markets or stay private, the market that's left behind is made up of companies that are on average bigger and older.
The data show that the listings decline is a U.S. phenomenon — most other developed countries haven't had trouble keeping up their number public listings. A likely explanation is that it's much easier today for small companies to get private funding, so there is little need for a small company to expose itself to public scrutiny and the set costs of being listed. While staying private isn't itself a bad thing, the decline of a robust public market in the U.S. is a serious issue.
"It is also bad for transparency, as more firms are hidden," said Stulz. "It is much better for capitalism and democracy if firms want to be public and benefit from being public."
The benefits of listing tend to increase as a company gets bigger. At the same time, the number of public firms has shrunk, the aggregate market capitalization of the market has grown substantially, meaning that each remaining public company is much larger than the equivalent company in 1975 or 1995. A wide variety of indicators also suggest that positive performance is much more concentrated in a smaller number of companies, according to the paper. That means that a few companies account for most of the income, assets, etc., across the entire selection of public companies.