In the last 20 years, the U.S. stock market has undergone an alarming change that too few people are aware of or talking about. Between 1996 and 2016, the number of listed companies fell by half, from 7,300 to 3,600, according to a recent report by Credit Suisse. This occurred despite the U.S. economy growing nearly 60 percent over the same period.

Number of Listed U.S. Companies Continues to Drop
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What’s even more flummoxing is that the U.S. seems to be the only developed country that lost so many stocks. Most other countries actually gained around 50 percent.

This matters because the U.S. stock market accounts for a little over half of the entire global equity market, meaning a huge (and growing) number of investors and fund managers now have fewer options to choose from than they did only a couple of decades ago.

So why’s the pool of publically-traded companies shrinking? We can point to a few different culprits.

For one, merger and acquisition (M&A) activity has strengthened in recent years, and when an M&A takes place, a company is consequentially delisted (if it was listed before the deal). The same thing happens, of course, when a company goes out of business.

Another reason could be the growth of private capital, which allows companies to raise funds without having to go public. Between 2013 and 2015, the amount of private money invested in tech start-ups alone tripled from $26 billion to $75 billion, according to consulting firm McKinsey. As a result, more and more software firms are managing to reach $10 billion in value before their IPO. Think wildly successful companies like Dropbox, Airbnb, Pinterest, Uber—all of which, for now, have avoided selling shares to public investors.

Unintended Consequences

My belief is that, out of all the reasons for fewer U.S. stocks and IPOs, the most impactful has been the surge in federal regulations over the last two decades. Rising costs associated with being listed on an exchange and meeting compliance standards have prohibited IPOs for all but the very largest U.S. firms. Small businesses—which, according to the American Council for Capital Formation (ACCF), account for more than half of all U.S. sales and 66 percent of all new jobs since 1970—are increasingly less competitive.

This partly explains why more and more companies are delaying going public. Back in 1980, Apple’s IPO came a mere four years after Steve Jobs, Steve Wozniak and Ronald Wayne founded the company in Jobs’ garage. Amazon waited only three years after Jeff Bezos founded it in 1994. Today that number has risen dramatically. It’s now estimated that the average age of a tech firm at the time of IPO is 11 years.

Some might disagree that regulations have had much of an effect on the U.S. equity market, but I believe the evidence is incontestable.