A decline in public firms can limit the ability of households to benefit from profits and growth opportunities provided by successful businesses. With fewer publicly traded companies, people have fewer options to diversify their retirement savings portfolios and achieve their long-term financial goals.”
There have been multiple hypotheses about the causes of this stark decline in the number of public firms in the US. Our goal with this research was to analyze different channels in a unified framework to determine the contribution of each cause on the decline.
What are the implications of this research? What do your findings mean for the future of public versus private firms in the United States and beyond?
Our results suggest that the high level of merger and acquisition activity, which has characterized the US economy for the past three decades, has played the primary role in causing a decline in the number of public firms. In addition to helping us understand the trends, this finding has important implications for government agencies enforcing antitrust laws. Antitrust laws are enforced based primarily on the potential effects on industry competition and product market considerations. Our results suggest that industry consolidation could have other important implications—its impact on the public stock markets, for example, could affect the democratization of investment opportunities for US households.
What questions did this research open that you hope to explore in the future?
Given the critical role of mergers and acquisitions in the decline of public markets, an important follow-up question involves asking about the forces that create this high level of merger and acquisition activity, especially among young and entrepreneurial firms.