The US left behind: The rise of IPO activity around the world

Craig Doidge, George Andrew Karolyi, René M Stulz, 3 August 2011



Over the past two decades, there has been a dramatic change in initial public offering (IPO) activity around the world. In particular, IPO activity in the US has fallen compared to the rest of the world. Figure 1 shows the ratio of IPO proceeds to GDP for the both the US and for the world, as well as the difference between the two ratios.

Figure 1. IPO proceeds to GDP for the US and the world

If the importance of IPOs in the US relative to its economic importance in the world were unchanged, the difference between the US and the world should stay constant over time. Instead, the difference has widened. The importance of IPOs in the US relative to the world has not kept up with the economic importance of the US. This decline in IPO activity by US firms has caught the attention of both the financial press and policymakers as it is widely believed that the IPO market plays a critical role in the US economy.

Some of the decrease in the importance of US IPO activity compared to worldwide IPO activity is due to lower IPO activity by US firms, but much of it is explained by the considerable growth of IPOs in other countries. To a large extent, this growth is fuelled 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 of all the shares are sold outside the home country. In 2007, proceeds raised in global IPOs accounted for 61% of total IPO proceeds, which is double the fraction raised in 1990. US firms typically go public through domestic IPOs and have never been active participants in the global IPO marketplace. This newer global IPO phenomenon is an important tool linked to the globalisation of capital markets.

National institutions and IPO activity around the world

There is a large literature, pioneered by La Porta et al. (1997, 1998), that focuses on how differences in countries’ laws and governance can explain differences in IPO activity across countries. Theoretical models by Shleifer and Wolfenzon (2002) and Stulz (2009) examine how a country’s laws, disclosure rules, and governance (“institutions”, hereafter) affect the benefits and costs of going public for the owners of firms and hence affect the likelihood that a firm will go public in a given country. Controlling shareholders of public firms can extract private benefits at the expense of minority shareholders. However, minority shareholders buy shares at the IPO at fair value and any expected private-benefit consumption reduces IPO proceeds. Private benefits are lower in countries with better institutions, so that in these countries the equity of firms is worth more and more firms benefit from going public.

From this “law and finance” perspective, IPO activity has been vibrant in the US because of strong institutions. However, in recent years, the relative importance of US IPOs and non-US IPOs has switched. IPOs in the rest of the world have become much more important and IPOs in the US have become less important. One possible explanation is that countries’ institutions have become less important because firms wanting to pursue IPOs have found increasingly more ways made available by financial globalisation to avoid being hindered by institutional obstacles in their home country.

Financial globalisation and IPO activity

The free flow of capital globally allows firms to raise funds publicly outside their country of domicile. By all measures, finance became much more global when we compare the 2000s before the global financial crisis of 2008-2009 to the 1980s. In the 1980s, many countries with viable stock markets were actually closed to capital flows. Very few of these countries were still closed or had substantial obstacles to capital flows in the 2000s.

More globalised and open financial markets enable firms to take advantage of the greater financial development, economic development, and institutions of foreign countries. For example, in a 2007 paper we present theoretical models in which financial market globalisation allows firms to borrow the institutions of foreign countries, e.g., global IPOs can be used to overcome the adverse effects of weak home country institutions (see Doidge et al. 2007 and also Stulz 2009). Firms from countries with weaker institutions should benefit more because they can raise capital on better terms. Such firms should be more likely to go public with a global IPO and to raise more proceeds in foreign markets. However, firms can also benefit from the institutions and resources from other countries in their governance, even if they do not go public through a global IPO. Therefore, as financial markets become more globalised the role of home country institutions should diminish in importance so that home country institutions should matter less for domestic IPO activity. Finally, if institutions have become less important for domestic IPO activity and if financial globalisation and the accessibility of global IPOs are related to this development, then national institutions should have become similarly less important for the intensity of global IPO activity.

Some empirical evidence

In a recent paper (Doidge et al. 2011), we assembled a dataset of 29,361 IPOs from 89 countries constituting almost $2.6 trillion (constant 2007 US dollars) of capital raised over 1990 to 2007. We found that there has been a striking evolution over time in IPO activity across countries. To try to understand cross-country IPO activity around the world, its evolution over time, and the role of financial globalisation, we investigated three separate questions:

  • What is the role of country institutions for the cross-country variation of domestic IPOs?
  • Has the role of country institutions changed over time with financial globalisation?
  • What is the relation between global IPO activity by firms from a country and the institutions of that country?

Our analysis shows that countries with better institutions have more domestic IPO activity, measured as either the annual number of domestic IPOs scaled by the lagged number of domestic listed firms or as the annual proceeds raised in domestic IPOs scaled by lagged GDP. The results are both statistically and economically significant, even after controlling for local growth opportunities, worldwide domestic IPO activity, and financial and economic development. We expect the effect of globalisation to be more powerful in the second half of our sample period. When we compare the impact of institutions on IPO activity in the 1990s and the 2000s, we find that the institutions of the country in which a firm is located are much less important for explaining domestic IPO activity in the 2000s compared to the 1990s.

Much of the growth in IPO activity around the world is through global IPOs. With globalisation, firms can use global markets to go public to avoid being constrained by their home country. We use a measure of global IPO activity that evaluates how intensively the firms in a country pursue global opportunities. We find that firms from countries with weaker institutions have more global IPO activity, after controlling for the overall level of domestic IPO activity, local and global growth opportunities, worldwide domestic and global IPO activity, and financial and economic development. We also find some evidence that the negative relationship between global IPO activity and countries’ institutions is stronger in the 1990s compared to the 2000s.


There have been some dramatic changes in the IPO landscape around the world. US IPOs have become less important, whether we look at counts or at proceeds. In fact, US IPO activity has generally not kept pace with the economic importance of the US. Meanwhile, global IPOs have played a critical role in increasing the importance of IPOs by non-US firms. Though firms in countries with weaker institutions are less likely to go public with a domestic IPO, they are more likely to go public in a global IPO. That is, global IPOs enable firms to overcome poor institutions in their country of origin. Perhaps as a result, 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.


Doidge, Craig, G Andrew Karolyi, and René M Stulz (2007), “Why Do Countries Matter So Much For Corporate Governance?”, Journal of Financial Economics, 86: 1-39.

Doidge, Craig, G Andrew Karolyi, and René M Stulz (2011), “The US Left Behind: The Rise of IPO Activity Around the World”, ECGI - Finance Working Paper No. 303/2011.

La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny (1997), “Legal Determinants of External Finance”, Journal of Finance 52:1131-1150.

La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny (1998), “Law and Finance”, Journal of Political Economy, 106:1113-1155.

Shleifer, Andrei, and Daniel Wolfenzon (2002), “Investor Protection and Equity Markets”, Journal of Financial Economics, 66:3-27.

Stulz, René M (2009), “Securities Laws, Disclosure, and National Capital Markets in the Age of Financial Globalisation”, Journal of Accounting Research, 47:349-390.

Topics: Institutions and economics
Tags: corporate governance, IPOs, public companies, US

Associate Professor of Finance at the Rotman School of Management, University of Toronto

Professor of Finance, Samuel Curtis Johnson Graduate School of Management, Cornell University

René M Stulz

Professor of Finance at the Ohio State University