The U.S. Left Behind: The Rise of IPO Activity Around the World

Craig Doidge, Andrew Karolyi and I have posted on SSRN a new working paper titled The U.S. Left Behind: The Rise of IPO Activity Around the World. We show that there has been a striking evolution over time in IPO activity across countries. We build a comprehensive sample of 29,361 IPOs from 89 countries constituting almost $2.6 trillion (constant 2007 U.S. dollars) of capital raised over 1990 to 2007. Although the share of IPO activity by U.S. firms still ranks near the top worldwide, during the 2000s IPOs in the U.S. have not kept up with the economic importance of the U.S. In the 1990s, the yearly average of the number of U.S. IPOs comprised 26.7% of all IPOs in the world while the U.S. accounted for 27% of world Gross Domestic Product (GDP). Since 2000, the U.S. share of all IPOs has fallen to 11.7% whereas its share of worldwide GDP has averaged 30%. The average size of a typical IPO in the U.S. is larger than that in the rest of the world so that IPO proceeds may be a more relevant metric. Yet, in the last five years of our sample, total U.S. IPO proceeds drop to 16.2% of world IPO proceeds despite the fact that during that period the market capitalization of the U.S. relative to the world stock market capitalization averages 41%.

Some of the decrease in the importance of U.S. IPO activity compared to worldwide IPO activity is due to lower IPO activity by U.S. firms, but much of it is explained by the considerable growth in IPOs in other countries that occurs throughout the sample period. To a large extent, this growth is fueled by the emergence of global IPOs, which include both IPOs in which some of the shares are sold outside the home country of the firm going public, and foreign IPOs in which all the shares are sold outside the home country. In 2007, proceeds raised in global markets accounted for almost 60% of total IPO proceeds in the world, which is double the fraction of global IPO proceeds raised in 1990.

Countries with better laws and governance institutions have more domestic IPO activity, measured as either the annual number of purely domestic IPOs scaled by the lagged number of domestic listed firms or as the annual proceeds raised in purely domestic IPOs scaled by lagged GDP. In contrast, global IPOs are more likely to occur in countries with poorer laws, markets, and national institutions, so that global IPOs enable firms to overcome poor institutions in their country of origin. Measuring global IPO activity by firms in a given country as either the fraction of the annual number of global IPOs to the total number of IPOs or as the percentage of annual global IPO proceeds to total IPO proceeds, we find strong support for the prediction that countries with weaker institutions have more global IPO activity. These findings are robust to controlling for other important determinants of IPO activity. Perhaps as a result of the importance of global IPOs, the laws and institutions of a firm’s country of origin have become significantly less important in affecting the rate and pace of IPO activity in a country. For instance, while common law countries have significantly more IPO activity in the 1990s than the other countries, they do not in the 2000s.

The full paper is available for download here.