The number of public-company listings in the United States peaked in the mid-1990s, at nearly 6,000, but that number has fallen by about half over the past 20 years.1 The number of IPOs has also gone down sharply in this same period.2 A chief worry among some pundits3 is that drop-offs in both areas may limit the playing field for smaller, less-sophisticated investors and prevent them from putting their money behind big ideas that may create big value for the markets and for society. Our research shows, however, that these trends are overstated. The decline is not as steep as pundits suggest, and the shifts simply reflect the natural ebb and flow of markets and corporate business strategies.
Our examination of close to 10,000 public-company listings and IPOs in the United States over the past two decades reveals that the drop-off in the number of listed public companies is primarily the result of changing dynamics in several key sectors: banking, industrials, and technology. What’s more, the net decline can be mostly attributed to exits that occurred between 2001 and 2010—and most of those exiting companies had been acquired.4 The data also show that industry consolidation contributed to a decline in IPOs between 2001 and 2010, but the numbers have stabilized since then.5
A change in the number of public companies
According to our analysis, the number of public companies listed in the United States dropped from about 5,500 in 2000 to about 4,000 in 2020. One interesting trend, however, is that there were more company exits during the first decade than the latter one: between 2001 and 2010, about 3,300 companies exited the market while 1,800 companies entered. (It’s worth noting that the dot-com bubble and the credit crisis occurred during this period.) By contrast, between 2011 and 2020, corporate exits and new market entries were about even at 2,100 (Exhibit 1).
A closer look at the data shows that banks (diversified financials), industrial companies, and technology firms (hardware and semiconductors) accounted for much of the decline in the number of public companies. Between 2001 and 2010, these sectors experienced twice as many exits as new entrants (Exhibit 2). The US banking system, for instance, which had long been one of the most fragmented in the world because of decades-long laws that prevented cross-state banking, has been consolidating over time as regulations have changed. At the same time, we’ve seen more IPOs from innovative payment and financial-technology companies that, while fewer in number, boast sizable market capitalizations. These types of IPOs can present new opportunities for investors.
A double-click on the exit data reveals that about 95 percent of the exiting companies in our research base had been acquired (Exhibit 3). Also of note, the only companies that increased their representation during the 20-year period we studied were those in pharmaceuticals and biotechnology. Between 2011 and 2020, there were more than twice as many new corporate entrants as exits in these sectors, which is perhaps not surprising when you consider that start-ups are now doing much of the research on new drugs—with help from venture-capital funds, of course. The start-up companies that succeed, and then go public, provide opportunities for other, public investors.
A change in the number of IPOs
We also analyzed the change in the number of IPOs over the 20-year period. Just recently, there has been a surge in IPOs, which is perhaps a reflection of the response and recovery from the global COVID-19 pandemic. More than 400 have been filed so far in 2021, which already exceeds the total number of IPOs in 2020.
Recent surge aside, the number of IPOs did decline between 2001 and 2010—perhaps due to the cost, time requirements, and complex disclosures required for companies to go public—but it has remained relatively stable since then, with about 200 IPOs filed each year.6
IPOs are also getting larger. Between 2001 and 2010, around 15 percent of all IPOs filed were under $50 million; that number was only 5 percent between 2011 and 2020 (Exhibit 4).
The concerns about the decline in the number of listed companies appear to be unfounded. Trend lines can change, of course, and the fact that IPOs are getting larger does signal that some of the early value capture right now is by private investors. But for now, the public markets are robust and continue to provide opportunities for all kinds of investors.
