In the United States, there are fewer publicly listed firms today than there were last century. And not only has the absolute number declined, the number of listed firms per capita has also fallen relative to other advanced economies.

According to new research published in the Financial Review, the number of publicly listed companies in the U.S. peaked in 1996, when more than 8,000 firms were listed across the New York, American and NASDAQ stock exchanges. That number would typically be expected to grow alongside the economy. But it didn’t.

By 2012, listings had dropped to 4,102 — about half the number from just sixteen years earlier. That’s 5,420 fewer companies than expected if listings had kept pace with economic growth.

By 2023, the gap had widened further. According to research author Craig Doidge, a finance professor at the Rotman School of Management, there were just 4,315 publicly listed firms — 7,162 fewer than economic growth would predict.

“The listing gap is getting wider, but the speed at which it’s increasing is slowing down,” says Doidge. “Still, the U.S. has only about half as many listed firms per capita as other developed countries.”

But does this decline matter? After all, the U.S. was the world’s largest and most dynamic economy in the 1970s — and still is.

“Some people think that the decline might not matter,” Doidge says. “Mergers and acquisitions are a major driver of the decline of publicly listed companies and when one listed firm acquires another, the assets don’t disappear. Is there really a difference between two public firms and one larger merged firm selling the same products?”

And, if mergers create more value for shareholders – since one large firm might be worth more than two smaller ones – it could be argued that the decrease in publicly listed firms is simply a reality driven by economic factors, and that the economy is moving towards a more efficient version of how firms organize themselves.

But there are potential downsides.

While Doidge doesn’t make a definitive judgment about whether the decline is good or bad, he highlights several concerns around competition, innovation, and transparency:

• Consolidation reduces competition. It’s probably not a coincidence that the decline in the number of publicly listed firms happened in an era of weak antitrust enforcement. And when large firms dominate the economy, they have market power and can charge higher prices, which is bad for consumers.
• Barriers to entry into public markets hurt economic dynamism. Markets play an important role in funding and growth. Fewer publicly listed companies could also mean fewer innovative firms overall.
• Less transparency affects capital allocation. When more companies are privately held, it obscures price signals, which leads to less efficient capital allocation. A publicly traded firm’s value is reflected in its stock price. Investors, entrepreneurs and corporations consider this type of information when they are making policy decisions or choosing how to allocate capital.

Mergers and acquisitions remain the leading reason firms leave the market. Delistings for cause — when firms fail to meet requirements — are the second most common. But there’s also a noticeable drop in initial public offerings (IPOs). Simply put, fewer companies are choosing to go public in the first place.

There are a number of reasons for this. For one, it is easier for a firm to stay private now, Doidge says, as access to private capital is more readily available. Firms themselves have also changed, he adds. Intangible capital – such as brand IP or patents – have become more important for company success. “[And] for many firms in the U.S., public disclosures are more costly for firms with intangible capital.”

This shift has broader ramifications. Public firms must disclose financials, strategy and even social initiatives — all of which are scrutinized by analysts and investors, often in ways that impact stock price.

“There’s a whole machinery of analysts monitoring public disclosures,” says Doidge. “Pension funds, hedge funds and activist investors all monitor you. But when you are a privately held company, you are not required to disclose information in the same way. So, when more and more firms choose to stay private rather than go public, you get less corporate transparency overall. 

"We don’t want a world where public firms aren’t required to disclose relevant information,”says Doidge. “That’s not the answer.”

Part of the solution may lie in more balanced regulation. Doidge points to environmental and social reporting, which are currently mandated in Canada and the U.S. While advocate argue the information is valuable, there’s an additional cost to this reporting.

That imbalance may further incentivize staying private. Regulators, Doidge argues, need to be aware of the trade-offs companies face — and the unintended consequences policy decisions can create.

“A private company will not have all of the same regulatory requirements as a publicly listed one,” says Doidge. “Regulation should not further tilt the playing field to make it a disadvantage for publicly listed firms.”

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