Financial Globalization and the Rise of IPOs Outside the U.S.

Abstract

From 1990 to 2011, the share of the world’s initial public offering (IPO) activity outside the U.S. increased with financial globalization. In the 1990s, when financial globalization was lower, there were 0.37 U.S. IPOs for each non-U.S. IPO compared to only 0.12 in the 2000s. Consistent with theoretical predictions, we find that greater financial globalization is associated with a decrease in the importance of national institutions as determinants of a country’s domestic IPO activity. One reason for this decrease is that greater financial globalization makes it easier for firms going public to access foreign capital markets and use foreign institutions. As a result, a large part of the increase in non-U.S. IPO activity occurred through an increase in global IPOs by both small and large firms. U.S. IPO activity did not benefit from increased financial globalization and, consequently, the U.S. share of world IPOs fell. It did so most dramatically for small-firm IPOs, for which its market share fell from 31% in the 1990s to 5% in the 2000s. Our evidence highlights the role of financial globalization in explaining the drop in the U.S. share but it also suggests that some of the drop is due to U.S.-specific factors.