The Decline of Public Markets and the Rise of Private Capital in Canada: Findings, Issues, and a Research Agenda

Abstract

Since the early 2000s, Canadian public equity markets have undergone a profound transformation. Although the total number of entities listed on the Toronto Stock Exchange (TSX) has held steady or grown, this apparent vitality masks a marked decline in operating companies—those that produce goods or provide services—whose number fell by roughly 38% between 2008 and 2022. The erosion reflects a drying-up of new listings rather than rising delistings: in 2023, the TSX recorded a single initial public offering. Capital formation has meanwhile migrated toward private markets, where issuers raise financing through prospectus-exempt distributions without going public.

Drawing on empirical evidence and on the Canadian and international literature, this study documents these trends and analyzes the economic, structural, regulatory, institutional and cultural factors that explain the decline of initial public offerings in Canada and Quebec, situating them within a broader global pattern. It then examines six issues raised by the growth of private-market financing: allocative efficiency and the valuation of private assets; corporate governance and accountability; financial inclusion and investor protection; conflicts of interest within private investment funds; the concentration of economic power in institutional asset managers ("agency capitalism"); and systemic risk and financial stability.

The study concludes with a research agenda organized around six reform avenues for regulators, aimed both at modernizing the framework governing the exempt market—including the accredited-investor concept—and at strengthening the attractiveness and relevance of Canadian public markets, with attention to competitiveness, transparency and financial innovation. It offers a state of play of Canadian capital markets and a foundation for future normative and empirical work.

Keywords: public company decline; private capital; initial public offerings; exempt market; prospectus exemptions; private placements; accredited investor; securities regulation; Canadian capital markets; Toronto Stock Exchange; private equity; venture capital; institutional investors; corporate governance; investor protection; systemic risk; capital formation