Hu (2019) on the decline in IPOs in the US

In her Honours thesis, my student Josephina Hu investigates the 53% drop in US initial public offerings (IPOs) since the turn of the millenium. In stark contrast with the vitality of the IPO scene in the 80s and 90s, this has adversely affected entrepreneurship, employment, and economic growth.

The analysis centres on four explanations:

1. Alternative capital and exit opportunities: private funding options like venture capital reduce public-offering needs, as do increased private-equity buyouts and mergers & acquisitions;
2. Regulatory burdens: heightened compliance costs, especially from the Sarbanes-Oxley Act (SOX) of 2002 and the Jumpstart Our Business Startups Act (JOBS) of 2012, deter public listings;
3. Investor sentiment;
4. Macroeconomic conditions, such as firm creation rates and stock-market performance.

Building a time-series dataset on 8,360 companies, Josephina identifies alternative capital and exit opportunities as the primary determinants of IPO volumes. Business dynamism and investor sentiment also emerge as significant determinants.

These findings illuminate changing capital market dynamics and the decision-making process for public offerings. They underscore the importance of understanding the capital-raising environment for investors, regulators, and the broader economy.

Read Josephina’s thesis here.