Listing Gaps, Merger Waves, and the New American Model of Equity Finance

The US listing gap—an abnormal decline in the number of stock market listings relative to other countries—is often interpreted as a warning sign for the US public equity markets. We show that, over the same period that the US listing gap expands, the US economy has experienced abnormally high aggregate stock market valuations, merger activity, and private equity (PE) investments. We investigate the relations among these dimensions and document a transition in the US equity financing model. Our revised estimation shows that the US listing gap is created in two distinct waves, the timing of which suggests a negative role for the regulation of listed firms. The US listing gap is virtually fully explained by the rise of mergers and acquisitions activity, as the leading factor, and PE investments since the mid-1990s. Finally, we document that this phenomenon is emerging in other developed economies, with a few years of delay. JEL Classification: G15; G24; G34; G28; K22