Hostname: page-component-848d4c4894-4hhp2 Total loading time: 0 Render date: 2024-06-02T08:25:09.545Z Has data issue: false hasContentIssue false
  • English
  • Français

Where Have All the IPOs Gone? Trade Liberalization and the Changing Nature of U.S. Public Corporations

Published online by Cambridge University Press:  11 December 2023

Thomas P. Griffin Open the ORCID record for Thomas P. Griffin [Opens in a new window]
Thomas P. Griffin*
Affiliation:
Villanova University Villanova School of Business
*
thomas.griffin@villanova.edu
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

I show that a tariff policy change that increased trade with China led to a decline in U.S. public listing rates and elevated industry concentration. Consistent with heterogeneous firm models of trade, the shock impeded the entry and performance of small domestic manufacturers but did not adversely impact large multinationals. In addition, stock price reactions to the tariff policy change and threat of reversal imply that trade liberalization creates or destroys value depending on firm size. These findings suggest that recent trends in the U.S. public equity market are driven, in part, by fundamental changes in the global competitive landscape.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 40
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

I thank an anonymous referee and Ran Duchin (the editor) for their excellent feedback. I also thank David Becher, Eliezer Fich, Michelle Lowry, Greg Nini, Jérôme Taillard, and seminar participants at Babson College, Drexel University, and Villanova University. A previous version of this article was titled “Globalization and US Industry Concentration.”

References

Acemoglu, D.; Autor, D.; Dorn, D.; Hanson, G. H.; and Price, B.. “Import Competition and the Great US Employment Sag of the 2000s.” Journal of Labor Economics, 34 (2016), S141–S198.CrossRefGoogle Scholar
Ali, A.; Klasa, S.; and Yeung, E.. “The Limitations of Industry Concentration Measures Constructed with Compustat Data: Implications for Finance Research.” Review of Financial Studies, 22 (2008), 3839–3871.CrossRefGoogle Scholar
Angrist, J. D., and Pischke, J. S.. Mostly Harmless Econometrics: An Empiricist’s Companion. Princeton, NJ: Princeton University Press (2009).CrossRefGoogle Scholar
Aslan, H., and Kumar, P.. “Globalization, Competition and Entrepreneurial Activity: Theory and Evidence from US Households.” Journal of Monetary Economics, 120 (2021), 83–100.CrossRefGoogle Scholar
Autor, D. H.; Dorn, D.; and Hanson, G. H.. “The China Syndrome: Local Labor Market Effects of Import Competition in the United States.” American Economic Review, 6 (2013), 2121–2168.CrossRefGoogle Scholar
Bai, J. “Organizational Form and Trade Liberalization: Plant-Level Evidence.” Management Science, 67 (2021), 7755–7784.CrossRefGoogle Scholar
Baker, A. C.; Larcker, D. F.; and Wang, C. Y.. “How Much Should We Trust Staggered Difference-in-Differences Estimates?” Journal of Financial Economics, 144 (2022), 370–395.CrossRefGoogle Scholar
Baker, S. R.; Bloom, N.; and Davis, S. J.. “Measuring Economic Policy Uncertainty.” Quarterly Journal of Economics, 131 (2016), 1593–1636.CrossRefGoogle Scholar
Barrot, J. N.; Loualiche, E.; Plosser, M.; and Sauvagnat, J.. “Import Competition and Household Debt.” Journal of Finance, 77 (2022), 3037–3091.CrossRefGoogle Scholar
Bernard, A. B.; Jensen, J. B.; and Schott, P. K.. “Survival of the Best Fit: Exposure to Low-Wage Countries and the (Uneven) Growth of US Manufacturing Plants.” Journal of International Economics, 68 (2006), 219–237.CrossRefGoogle Scholar
Bloom, N.; Draca, M.; and Reenen, J. V.. “Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity.” Review of Economic Studies, 83 (2016), 87–117.CrossRefGoogle Scholar
Bonaime, A.; Gulen, H.; and Ion, M.. “Does Policy Uncertainty Affect Mergers and Acquisitions?” Journal of Financial Economics, 129 (2018), 531–558.CrossRefGoogle Scholar
Chemmanur, T. J.; He, J.; Ren, X.; and Shu, T.. “The Disappearing IPO Puzzle: New Insights from Proprietary US Census Data on Private Firms.” Working Paper, Boston College (2022).Google Scholar
Coates, J. C., and Srinivasan, S.. “SOX After Ten Years: A Multidisciplinary Review.” Accounting Horizons, 28 (2014), 627–671.CrossRefGoogle Scholar
Cohn, J. B.; Liu, Z.; and Wardlaw, M. I.. “Count (and Count-Like) Data in Finance.” Journal of Financial Economics, 146 (2022), 529–551.CrossRefGoogle Scholar
Covarrubias, M.; Gutiérrez, G.; and Philippon, T.. “From Good to Bad Concentration? US Industries over the Past 30 Years.” NBER Macroeconomics Annual, 34 (2020), 1–46.CrossRefGoogle Scholar
deHaan, E. “Using and Interpreting Fixed Effects Models.” Working Paper, University of Washington (2021).CrossRefGoogle Scholar
Doidge, C.; Karolyi, A.; and Stulz, R. M.. “The US Left Behind? Financial Globalization and the Rise of IPOs Outside the US.” Journal of Financial Economics, 110 (2013), 546–573.CrossRefGoogle Scholar
Doidge, C.; Karolyi, A.; and Stulz, R. M.. “The US Listing Gap.” Journal of Financial Economics, 123 (2017), 464–487.CrossRefGoogle Scholar
Dyreng, S. D.; Hanlon, M.; Maydew, E. L.; and Thornock, J. R.. “Changes in Corporate Effective Tax Rates over the Past 25 Years.” Journal of Financial Economics, 124 (2017), 441–463.CrossRefGoogle Scholar
Eckbo, B. E., and Lithell, M.. “Merger-Driven Listing Dynamics.” Working Paper, Dartmouth University (2022).CrossRefGoogle Scholar
Engel, E.; Hayes, R. M.; and Wang, X.. “The Sarbanes–Oxley Act and Firms’ Going-Private Decisions.” Journal of Accounting and Economics, 44 (2007), 116–145.CrossRefGoogle Scholar
Ewens, M., and Farre-Mensa, J.. “The Deregulation of the Private Equity Markets and the Decline in IPOs.” Review of Financial Studies, 33 (2021), 5463–5509.CrossRefGoogle Scholar
Ewens, M.; Xiao, K.; and Xu, T.. “Regulatory Costs of Being Public: Evidence from Bunching Estimation.” Working Paper, Columbia University (2021).CrossRefGoogle Scholar
Feenstra, R. C.; Romalis, J.; and Schott, P. K.. “US Imports, Exports, and Tariff Data, 1989–2001.” Working Paper, University of California Davis (2002).CrossRefGoogle Scholar
Fresard, L. “Financial Strength and Product Market Behavior: The Real Effects of Corporate Cash Holdings.” Journal of Finance, 65 (2010), 1097–1122.CrossRefGoogle Scholar
Gao, X.; Ritter, J. R.; and Zhu, Z.. “Where Have All the IPOs Gone? ” Journal of Financial and Quantitative Analysis, 48 (2013), 1663–1692.CrossRefGoogle Scholar
Greenland, A. N.; Ion, M.; Lopresti, J. W.; and Schott, P. K.. “Using Equity Market Reactions to Infer Exposure to Trade Liberalization.” Working Paper, North Carolina State University (2020).CrossRefGoogle Scholar
Grullon, G.; Larkin, Y.; and Michaely, R.. “Are US Industries Becoming More Concentrated?” Review of Finance, 23 (2019), 697–743.CrossRefGoogle Scholar
Gu, T. “US Multinationals and Cash Holdings.” Journal of Financial Economics, 125 (2017), 344–368.CrossRefGoogle Scholar
Gulen, H., and Ion, M.. “Policy Uncertainty and Corporate Investment.” Review of Financial Studies, 29 (2016), 523–564.Google Scholar
Handley, K., and Limão, N.. “Policy Uncertainty, Trade, and Welfare: Theory and Evidence for China and the United States.” American Economic Review, 107 (2017), 2731–2783.CrossRefGoogle Scholar
Helpman, E. “Trade, FDI, and the Organization of Firms.” Journal of Economic Literature, 44 (2006), 589–630.CrossRefGoogle Scholar
Hoberg, G., and Moon, S. K.. “Offshore Activities and Financial vs Operational Hedging.” Journal of Financial Economics, 125 (2017), 217–244.CrossRefGoogle Scholar
Hoberg, G., and Moon, S. K.. “The Offshoring Return Premium.” Management Science, 65 (2019), 2876–2899.CrossRefGoogle Scholar
Hombert, J., and Matray, A.. “Can Innovation Help US Manufacturing Firms Escape Import Competition from China?” Journal of Finance, 73 (2018), 2003–2039.CrossRefGoogle Scholar
Iliev, P. “The Effect of SOX Section 404: Costs, Earnings Quality, and Stock Prices.” Journal of Finance, 65 (2010), 1163–1196.CrossRefGoogle Scholar
Irani, M. V.; Pinto, G.; and Zhang, D.. “IPOs on the Decline: The Role of Globalization.” Working Paper, University of South Carolina (2022).CrossRefGoogle Scholar
Irwin, D. A. Peddling Protectionism: Smoot–Hawley and the Great Depression. Princeton, NJ: Princeton University Press (2011).Google Scholar
Julio, B., and Yook, Y.. “Political Uncertainty and Corporate Investment Cycles.” Journal of Finance, 67 (2012), 45–83.CrossRefGoogle Scholar
Julio, B., and Yook, Y.. “Policy Uncertainty, Irreversibility, and Cross-Border Flows of Capital.” Journal of International Economics, 103 (2016), 13–26.CrossRefGoogle Scholar
Kahle, K. M., and Stulz, R. M.. “Is the US Public Corporation in Trouble?” Journal of Economic Perspectives, 31 (2017), 67–88.CrossRefGoogle Scholar
Kalmenovitz, J. “Regulatory Intensity and Firm-Specific Exposure.” Review of Financial Studies, 36 (2023), 3311–3347.CrossRefGoogle Scholar
Kennedy, P. A Guide to Econometrics. Hoboken, NJ: John Wiley & Sons (2008).Google Scholar
Khandelwal, A. “The Long and Short (of) Quality Ladders.” Review of Economic Studies, 77 (2010), 1450–1476.CrossRefGoogle Scholar
Knowlton, B. “Final Passage of BILL to Normalize U.S. Ties is Approved, 83 to 15: Senate Vote Introduces New Era in China Trade.” New York Times, Sept. 20, 2000.Google Scholar
Kwon, S.; Lowry, M.; and Qian, Y.. “Mutual Fund Investments in Private Firms.” Journal of Financial Economics, 136 (2020), 407–443.CrossRefGoogle Scholar
Lattanzio, G.; Megginson, W. L.; and Sanati, A.. “Dissecting the Listing Gap: Mergers, Private Equity, or Regulation?” Journal of Financial Markets, 65 (2023), 100836.CrossRefGoogle Scholar
Leuz, C. “Was the Sarbanes–Oxley Act of 2002 Really This Costly? A Discussion of Evidence from Event Returns and Going-Private Decisions.” Journal of Accounting and Economics, 44 (2007), 146–165.CrossRefGoogle Scholar
Leuz, C.; Triantis, A.; and Wang, T. Y.. “Why Do Firms Go Dark? Causes and Economic Consequences of Voluntary SEC Deregistrations.” Journal of Accounting and Economics, 45 (2008), 181–208.CrossRefGoogle Scholar
Loderer, C.; Stulz, R.; and Waelchli, U.. “Firm Rigidities and the Decline in Growth Opportunities.” Management Science, 63 (2017), 3000–3020.CrossRefGoogle Scholar
Loughran, T., and Ritter, J.. “Why Has IPO Underpricing Changed over Time?” Financial Management, 33 (2004), 5–37.Google Scholar
McAfee, A., and Brynjolfsson, E.. “Investing in the IT That Makes a Competitive Difference.” Harvard Business Review, 86 (2008), 98.Google Scholar
Melitz, M. J. “The Impact of Trade on Intra‐Industry Reallocations and Aggregate Industry Productivity.” Econometrica, 71 (2003), 1695–1725.CrossRefGoogle Scholar
Melitz, M. J., and Ottaviano, G.. “Market Size, Trade, and Productivity.” Review of Economic Studies, 75 (2008), 295–316.CrossRefGoogle Scholar
Melitz, M. J., and Trefler, D.. “Gains from Trade When Firms Matter.” Journal of Economic Perspectives, 26 (2012), 91–118.CrossRefGoogle Scholar
Muendler, M. A. “Trade, Technology, and Prosperity: An Account of Evidence from a Labor-Market Perspective.” Working Paper, World Trade Organization (2017).Google Scholar
Petersen, M. A. “Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches.” Review of Financial Studies 22 (2008), 435–480.CrossRefGoogle Scholar
Pierce, J. R., and Schott, P. K.. “The Surprisingly Swift Decline of US Manufacturing Employment.” American Economic Review, 106 (2016), 1632–1662.CrossRefGoogle Scholar
Pierce, J. R., and Schott, P. K.. “Investment Responses to Trade Liberalization: Evidence from US Industries and Establishments.” Journal of International Economics 115 (2018), 203–222.CrossRefGoogle Scholar
Ritter, J. R., and Welch, I.. “A Review of IPO Activity, Pricing, and Allocations.” Journal of Finance 57 (2002), 1795–1828.CrossRefGoogle Scholar
Roberts, M. R., and Whited, T. M.. “Endogeneity in Empirical Corporate Finance.” In Handbook of the Economics of Finance, Vol. 2, Constantinides, G. M., Harris, M., and Stulz, R. M., eds. Amsterdam: Elsevier (2013), 493–572.CrossRefGoogle Scholar
Ruhle, S. “Trump Was Angry and ‘Unglued’ When He Started a Trade War, Officials Say.” NBC News (2018).Google Scholar
Schmitt, E., and Kahn, J.. “The China Trade Vote: A Clinton Triumph; House, in 237–197 Vote, Approves Normal Trade Rights for China.” New York Times (2000).Google Scholar
U.S. General Accounting Office. U.S. Government Policy Issues Affecting U.S. Business Activities in China. Report to the Chairman, Committee on Government Affairs, and the Honorable Joseph I. Lieberman, U.S. Senate. (1994).Google Scholar
Zhang, I. X. “Economic Consequences of the Sarbanes–Oxley Act of 2002.” Journal of Accounting and Economics 44 (2007), 74–115.CrossRefGoogle Scholar
Supplementary material: File

Griffin supplementary material

Griffin supplementary material
Download Griffin supplementary material(File)
File 120.1 KB