Is the Current Design of the Initial Public Offering Process Optimal for the Markets and the Relevant Stakeholder Groups?

The initial public offering (IPO) is a milestone over the lifecycle of any company that has
contemplated or already decided to publicly trade its shares. The IPO allows for the (partial) exit of
the original owners, that is, a public sale of their stake in the business as well as is a means of
attracting additional financing to the firm. Although there are other benefits of having a public
company status, apart from access to new finance, such as enhanced company image and publicity,
motivating management and employees, the mentioned possibility of selling the existing stake, or a
formulation of a clearly defined strategy for future growth, required for compliance (see, e.g., Röell
(1996) for a comprehensive survey), there are also associated costs. Apart from indirect information
disclosure costs, constraints on freedom of action in making business decisions and the danger of
the loss of control, among others, there is also a direct cost of flotation resulting from required regulatory, legal and disclosure requirements. Given that, globally, the annual value of IPOs amounts
to hundreds of billions of dollars, any potential miscalibration of the potential costs and benefits has
significant economic consequences.
An initial public offering (IPO) slowdown has been witnessed in major markets around the world.
The number of annual IPOs in the United States averaged 436 from 1991 through 2000, peaking at
677 in 1996. By contrast, from 2001 through 2020, annual IPO counts averaged 113, with a peak of
206 in 2014. (Ritter, 2021). London's IPO listings have also declined since 2018, except for a boom in
2021 . In Hong Kong, IPO numbers decreased continuously from 2019 to 2022, from 183 in 2019 to
154 in 2020, and further to 98 in 2021 and 55 in the first 9 months of 2022 . Although Mainland
China is an exception and experiences an increasing trend, a high withdrawal rate has been
observed and the increase can be partly attributed to the pilot registration system.