The Disappearing Small IPO and the Lifecycle of the Small Firm

We examine firm lifecycles of 3,081 IPOs from 1996-2012. We find that small IPOs have a different lifecycle than other, larger companies. Within five years of an IPO, only 55% of small IPOs remain listed on a public exchange, compared to 61.3% and 67.1% for middle and large capitalized companies, respectively. Small IPOs largely either voluntarily or involuntarily delist while medium and large-sized companies largely exit the markets through takeover transactions. Those small companies that remain listed largely fail to grow, remaining in the small capitalized category. We use our findings to examine various theories explaining the decline of the small IPO. We find only minor evidence that regulatory changes caused the decline of the small IPO. The decline appears instead to be more attributable to the historical unsuitability of small firms for the public markets. Absent economic or market reforms which change small firm quality, further regulatory reforms to enhance the small IPO market are thus likely to be either ineffective or bring firms into the public markets which lack the horsepower to remain publicly listed.