REGINA – Canada’s stock market might appear on the outside to be in good shape, but there’s trouble brewing underneath the surface according to the Fraser Institute.
The organization took a look at what is happening in Canada’s public equity markets and are finding fewer companies that are publicly trading on the exchanges in Canada.
According to their study released last week titled Canada’s Shrinking Stock Market: Causes and Implications for Future Economic Growth, the number of publicly listed companies is down 32.7 per cent and initial public offerings down 92.5 per cent since 2010.
That is the decline seen from companies listed on Canada’s TSX and the TSXV. Those fell from 3,141 in 2010 to 2,114 in 2024.
Meanwhile, the number of new public stock listings has fallen from 67 in 2010 to four in 2024.
Jock Finlayson, a senior fellow with the Fraser Institute, is co-author of the study along with Ben Cherniavsky. Finlayson considers it an alarming trend.
“Businesses that in previous times might have chosen to obtain a stock market listing are instead deciding to stay private… rather than become publicly traded, and what that means for ordinary investors is there's fewer and fewer Canadian-based companies that you can actually invest in and obtain ownership in,” said Finlayson.
Historically, he notes, Canadian companies have turned to the equity markets to raise capital to grow their business. These days, not so much.
“We think that's a problem for the economy, you know, in the in a long-term sense and we go through a bunch of the academic literature that touches on the economic benefits that result from vibrant public equity markets — ours are not so vibrant these days, so we think that's a concern.”
There are three main things Finlayson points to as to why Canadians ought to be concerned with the trend.
“There's strong evidence that vibrant public equity markets are good for the economy — in other words, they help to fuel economic growth, higher levels of productivity, more business innovation. So to the extent your public equity markets appear to be shrinking over time, that has negative repercussions for the performance of the economy in the long term. So everybody should care about that.”
Another issue is that the lack of new listings on the stock market and the shrinkage in the total number of companies traded on stock markets means “it's getting harder for Canadians to invest in their own domestic economy, at least in the business sector of their own domestic economy there's fewer avenues available to people to actually but into successful growing Canadian firms.”
Because fewer companies are choosing to be listed on stock markets, that "reduces the ability of our own citizens to invest in business growth.”
The third concern is that “ownership of publicly traded equities is an important part of overall financial and retirement planning for many people in Canada.”
“So to the extent our markets are kind of losing ground and we don't have as much vitality and vibrancy in our stock markets, that makes it harder for people to manage their own wealth and humiliation and retirement.”
The study also makes a number of recommendations about how to revitalize the markets and Finlayson spoke of some of those.
The first item they want to see happen is reform to securities regulation and corporate governance practices.
Finlayson said the “cost associated with being a listed company had been going up very significantly over time because of increased disclosure requirements, the layering on of all kinds of additional obligations on senior management and board and members of boards of directors of publicly listed companies. They have to spend more and more time complying with the rules and regulations, plus all these corporate governance trends around including, for example, environmental, social and governance practices being incorporated into (how) all these publicly created companies operate. All of that has raised the cost of being publicly traded.”
Finlayson said they offer specific recommendations dealing with that, and then their second category of recommendations deal with “how to improve the business environment broadly in Canada so more companies will want to invest and grow here that deals with things like the regulatory burden on business the design of the tax system as it affects, you know growth companies and a variety of other things under that heading. So there's securities sorts of reform to securities laws and governance practices, along with changes in policies that will improve the overall business environment.”
Finlayson says that overall the issue of declining participation in the equity markets is not just an issue for the overall economy, but for individual investors as well.
“This is not simply a concern for the one per cent of the population. It has broader ramifications.”
