Half the Firms, Twice the Profits: Public Firms' Transformation, 1996-2022

Authors: Mark J. Roe, Charles C.Y. Wang

Abstract

The number of public firms in the United States has halved since the beginning of the twenty-first century, causing consternation among corporate and securities law regulators. The dominant explanations, often advanced by Securities and Exchange commissioners when considering policy initiatives, come from over- or under-regulation of the stock market. The central legal explanation is that the net impact of corporate and securities law is a heavy burden that has made the cost of being public too high. Conversely, goes the second legal explanation, capital-raising rules for private firms were once very strict but have loosened up. Private firms can now raise capital nearly as well as small- and medium-sized public firms. Private firms are displacing public ones. Either way, these views see legal imperatives as explaining the sharp decline in the public firm.