Canadian Productivity Decline Linked to Public Market Shrinking

J. Ari Pandes is an associate professor of finance and an associate dean at the University of Calgary’s Haskayne School of Business. Michael J. Robinson is a professor emeritus in entrepreneurship and innovation at the University of Calgary’s Haskayne School of Business. A key message often communicated to entrepreneurs is the importance of respecting the capital provided to their companies – the financial and human capital.

This message should resonate equally loudly with Canada’s politicians, who sometimes fail to recognize that capital is footloose – financial and human capital flow to higher-return, lower-risk opportunities. Recognizing this free movement of capital requires policy makers to regulate efficiently and effectively. Unfortunately, this has not been the case over the past decade in Canada. This failure has limited the ability of high-potential Canadian corporations to attract the resources needed to grow in this country. Private-sector professionals and senior personnel from the Bank of Canada have sounded the alarm about declining Canadian productivity for years. While various explanations have been suggested for this problem, we argue that the inability of Canadian firms to attract the investment needed to support innovation has been a significant factor. The dramatic decline in the number of publicly traded companies around the globe has been well documented. In the United States, the number of public companies is down by nearly a half from its peak in 1997. Canada has experienced a similar decline after the number of public companies on the Toronto Stock Exchange peaked in 2008. Many U.S. academics are not concerned about the decline in their public markets as increases in private equity investments have more than filled the financing gap. This has allowed U.S. companies to remain private longer and also provided existing public companies an off-ramp to the private markets. Indeed, U.S

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