Dramatic drop in US IPO activity can't be blamed on tougher regulations

Mar 04, 2014
Craig Doidge is an Associate Professor of Finance at the University of Toronto's Rotman School of Management. His research and teaching interests include international financial markets and corporate finance. He has published numerous papers in leading finance journals, including the Journal of Finance and Journal of Financial Economics. His research on the valuation of firms with foreign listings won the Fama-DFA Prize for Best Paper in Capital Markets and Asset Pricing in 2004. Craig is Associate Editor of the Review of Financial Studies and a guest editor on corporate governance for the Emerging Markets Review. Credit: Rotman School

An extensive study of initial public offerings shows dramatic changes in the IPO landscape around the world over the past two decades, including a large decrease in the importance of IPOs in the United States while IPOs became more important in other countries. This drop in U.S. IPOs cannot be explained by stricter regulations enacted after the corporate and accounting scandals in the early part of the 2000s.

"One of the main things people point fingers at is the Sarbanes Oxley Act. We show that U.S. IPO activity became abnormally low before the Sarbanes Oxley Act was passed," said Craig Doidge, an associate professor of finance at the University of Toronto's Rotman School of Management.

"The declining IPO activity was not caused by the regulatory changes in the U.S. in the early 2000s," said Prof. Doidge, adding that further Investigation Is needed to determine why U.S. IPO dropped so dramatically.

The study looked at data for more than 33,000 IPOs from 88 different from January 1990 to December 2011. It found that U.S. IPO activity has "generally not kept pace" with that country's economic importance, and is particularly low among small companies.

Capital raised through IPOs outside of the U.S. increased by 65 per cent from the 1990s to the 2000s. But in the U.S., capital raised through IPOs fell by 8 per cent during that period.

Looking at the actual number of IPOs, if the U.S. was at one time "'the land of the IPO, it is no longer so by the 2000s," the study concludes. Financial globalization has however benefited other countries, allowing them to overcome challenges to investment caused by weak domestic institutions.

Explore further: Study finds Illinois is most critical hub in food distribution network

More information: Prof. Doidge co-wrote the paper with G. Andrew Karolyi of Cornell University and René M. Stulz of Ohio State University, which was recently published in the Journal of Financial Economics.

add to favorites email to friend print save as pdf

Related Stories

Zynga plans to raise up to $1.15B in IPO

Dec 02, 2011

(AP) -- Online game maker Zynga says it plans to raise up to $1.15 billion in an initial public offering of 115 million shares in the latest in a spate of Internet IPOs

NYSE holds 'successful' test for Twitter IPO

Oct 27, 2013

The New York Stock Exchange said its test run of Twitter's initial public offering on Saturday was a success, as the exchange tries to avoid the technical problems that marred Facebook's debut last year.

3Qs: How 'tweet' it is?

Sep 19, 2013

Last week, the social media giant Twitter tweeted that it had filed for a planned initial public offering with U.S. regulators. We asked Linlin Ma, who joined the Northeastern faculty this fall as an assistant ...

Bazaarvoice, Proto Labs surge in market debuts

Feb 24, 2012

(AP) -- A splashy Wall Street debut by Bazaarvoice Inc. and Proto Labs Inc. is the latest sign that investor appetite for initial public offerings has rebounded after a dismal IPO market in 2011.

Recommended for you

Digging up the 'Spanish Vikings'

19 hours ago

The fearsome reputation of the Vikings has made them the subject of countless exhibitions, books and films - however, surprisingly little is known about their more southerly exploits in Spain.

User comments : 1

Adjust slider to filter visible comments by rank

Display comments: newest first

BSD
not rated yet Mar 04, 2014
Not science.

Economics is not science, it is gambling played by bullshit artists.

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.