In the last 20 years, the U.S. stock market has undergone an alarming change that too few people are aware of.
Between 1996 and 2016, the number of listed companies fell by half, from 7,322 to 3,671, according to data from Credit Suisse. This occurred despite the U.S. economy growing nearly 60 percent over the same period. What's even more flummoxing is that the United States seems to be the only developed country that lost so many stocks. Most other countries actually gained around 50 percent.
So why is this happening? We can point to a number of culprits.
For one, merger-and-acquisition activity has strengthened in recent years, and when M&A takes place, a company is consequentially delisted (if it was listed before the deal). The same thing happens, of course, when a company goes out of business.
Another reason could be the growth of private capital, which allows companies to raise funds without having to go public. Between 2013 and 2015, the amount of private money invested in tech start-ups alone tripled from $26 billion to $75 billion, according to consulting firm McKinsey. As a result, more and more software firms are managing to reach $10 billion in value before their initial public offering. Think Dropbox, Airbnb, Pinterest, Uber — all of which, for now, have avoided selling shares to public market investors.
My belief is that, out of all the reasons for fewer U.S. stocks and IPOs, the most impactful has been the surge in federal regulations over the last two decades. Rising costs associated with being listed on an exchange and meeting compliance standards have prohibited IPOs for all but the largest U.S. firms.