Reversing the Decline of Canadian Public Markets

Abstract

The public markets in Canada and the United States are booming right now, so why do so few companies want to join them? Public companies grow faster, innovate more, provide better jobs and access cheaper capital. If they don’t go public, companies must eventually sell themselves to larger competitors, resulting in economic concentration and, maybe, the loss of entire sectors to foreign buyers.

Since the 1990s, fewer companies in Canada, the U.S. and U.K. have chosen to go public. This has occurred even as the economic rewards of going public have increased. The simultaneous declines in very similar economies with different regulatory and institutional characteristics, suggest the causes are not being addressed in what has mostly been an American debate.

This paper argues that reforms to corporate governance and disclosure over the past forty years are primarily responsible for the growing unattractiveness of public markets. It takes agency cost theory seriously and examines the incentives operating on corporate managers around the going public decision. It finds many areas in the current public market system where significant costs are imposed on managers with, according to a well-established empirical literature, very few benefits to the firms themselves or their shareholders.

The paper concludes with recommendations for reform.

Keywords: corporate law, corporate governance, IPO, Initial Public Offering, Public Markets, Securities

JEL Classification: G24, G38, K22, M52, Z18