PERSPECTIVE: Canada’s Shrinking Stock Market – Here’s Why It Matters

Stock exchanges are an important way for domestic firms to raise capital and for residents to invest in the growth of successful locally-based businesses. There’s strong evidence that well-functioning stock markets contribute to economic and productivity growth as well as innovation, things which Canada needs more of right now.

The shrinking size and declining vibrancy of stock markets in Canada are concerning and impose real costs on average Canadians, limit our prosperity now and in the future, and reflect the existence of broader economic challenges in our economy.

Since the early 2000s, the number of public companies listed on stock exchanges has fallen in many advanced countries, including Canada. In 2008, for instance, Canada had 3,520 publicly traded companies on its two main exchanges, compared to 2,114 in 2024, a decline of 34.2 per cent.

Similarly, the number of new public stock listings (IPOs) on Canadian exchanges has plummeted. Between 2008 and 2013, the average number of IPOs per year was 47, but this dropped to 16 between 2014 and 2024, with only five new listings recorded in 2024.

This trend reflects a number of factors: the impact of mergers and acquisitions, greater access to private capital for many companies, and increasing regulatory and governance costs facing publicly-traded businesses.

In addition, as detailed by a number of analyses, Canada continues to struggle with a decade-long stagnation in business investment, including investment in new and updated plants, machinery, equipment, and research and development. A pattern of weak business investment and lagging innovation has also contributed to the decline in stock exchange listings in Canada.

The growth of index investing has also played a role in the reduced number of public listings, particularly among smaller companies. In 2008, there were 1,232 listed companies on the TSX Composite and 84 exchange-traded funds, compared to 709 listed companies on the TSX and 1,052 exchange-traded funds in 2024.

Over the same period the average market capitalization of a listing on the TSX has increased from $1 billion to $6 billion, illustrating how the big are getting bigger while the small are disappearing. And since all big companies start as small companies, this does not augur well for Canada’s economic future.

One offsetting trend to consider is the growth of private equity, which in Canada has skyrocketed from $12.8 billion in 2008 to $93.2 billion in 2024. While private equity represents an alternative source of capital for growing companies, the trends identified in our recent study are still concerning, as most Canadians cannot easily access private equity investment.

What this means for the vast majority of Canadians trying to save is that their investment options are dwindling, which inevitably affects the returns on their savings. This is particularly important for those Canadians trying to save for retirement, since lower rates of return effectively mean lower living standards in retirement.

These trends are also important when thinking about the broader business environment in Canada, in part because we’ve historically relied more heavily than other countries on public equity markets to finance domestic businesses. The reduced level of capital available through Canadian public equity markets means we have less resources (i.e. money) available for businesses to expand and innovate.

Revitalizing Canada’s stagnant stock markets requires policy reforms, particularly regulatory changes to reduce costs to issuers along with policies to improve the conditions for private-sector investment and business growth more broadly.