Elon Musk recently tweeted that he intends to take Tesla private, that is, to take Tesla off U.S. stock exchanges. In a parallel development, the number of companies listed on U.S. stock exchanges has declined by almost 50% from its peak in 1996, despite dramatic increase in aggregate market capitalization. Many conjectures have been offered to explain this controversial trend. We offer a new explanation: the rising role of digital firms in the U.S. economy.
Why We Shouldn’t Worry About the Declining Number of Public Companies
The number of companies listed on U.S. stock exchanges declined by almost 50% from its peak in 1996. The number of listed firms can decline because of three developments: 1) bankruptcy, failure, or closure of listed firms, 2) delisting of firms going private or acquired, and 3) decrease in number of initial public offerings (IPOs). All three factors have become more common over time, arguably because of the rise of digital businesses. So, what can be done to increase the number of listed companies in the U.S. exchanges — and is it even a worthwhile objective? Although we often treat the stock market as a barometer of economic activity and a healthy IPO market as the hallmark of successful entrepreneurial pursuits, there is no evidence that the recent decline in number of listed firms has adversely affected the U.S. economy. The decline in the number of listing companies is a sign of successful adaptation of organizational structures by U.S. corporations, keeping up with their changing business strategies. It should be applauded, not considered a cause for concern.