Question

Explain why has the IPO volume in the U.S. declined since 2000?

Answer 1

the IPO volume before 2000, was high at around 310 firms went public. Post 2000, the number of firms going public has declined. the low level of IPO has been a concern for the stock market officials ,venture capitalists , the financial press. the low IPO has also affected the economic growth and employment opportunities in the economy.

the main reasons behind the decline in IPO is :

1) Sarbanes - oxley act of 2002 : this act has imposed additional compliance cost on the publicly traded firms as a result of which small companies do not prefer going public.

2) there are such conditions in the Economy that do not make it profitable for the small companies to go public. they may generate higher profits by selling out than being listed on the exchange and relying on internal growth. they believe that being acquired/taken over by a large firm will bring more benefits to the organization in the form of additional funds, faster access to new technology and higher earnings economies of scale

low analyst coverage has result in lower valuations when the firm goes public,or lower earnings due to a higher costs imposed on the small firms complying with the litigation requirements .