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Abstract: 

The decline of the small-cap IPO market in the United States is often attributed to the rising regulatory burden of being public. This article — the first in a three-part series — argues that such explanations, while correct, are incomplete and that the decline reflects broader structural forces beyond regulatory burden. Drawing on empirical evidence, it shows that the IPO decline is overwhelmingly a small-company phenomenon and that regulatory costs, while real and regressive, explain only part of the trend. The second part, forthcoming in a subsequent issue, evaluates the SEC’s recent proposing releases and advances a broader regulatory reform framework addressing the economics of public-company status. The third part examines the market structure and systemic forces that continue to constrain the small-cap public market beyond disclosure reform alone.

Keywords: National Securities Markets Improvement Act of 1996; JOBS Act of 2012; Emerging Growth Company (“EGC”) Status; “Public Information Externality”; Research Coverage Crisis; Passive Capital; Changing Economics of Price Discovery; Small-Cap Fraud

Affiliations:  1: Goodwin Procter LLP.