British Economy Series: Why Are Fewer Companies Listing on the London Stock Exchange?

In recent years, the London Stock Exchange (LSE) has seen a noticeable decline in the number of new company listings and increasing numbers of companies moving their listing to other jurisdictions. Once a powerhouse of global finance, the LSE is facing increasing competition, changing market dynamics, and regulatory pressures that are making it less attractive, especially when compared to its US counterparts. What are the seasons for this and how can we reverse that trend?

Increased Global Competition from Other Exchanges

US stock exchanges (like the NASDAQ and the NYSE) are more attractive to companies due the greater pool of potential investors and available capital. This leads to higher valuations, deeper liquidity (making it easier to buy and sell investments), and a broader investor base.

This has been made worse since Brexit with London losing some of it's prestige as a gateway to Europe.

UK investors have historically leaned towards more conservative investments such as oil companies and banks, favouring dividends and profitability over growth and future potential. That makes it harder for newer, innovative companies such as those in the tech sector to secure the kind of valuations they seek. This makes the LSE less attractive for these disruptive high growth companies. This is compared to investors in the US who are generally more willing to take risks on early stage companies.

Governance and Regulation

The UK's governance, reporting and regulatory environment is more burdenson and costly for companies to implement compared to other jurisdictions, especially for smaller or foreign companies. While London's financial rules are designed to promote transparency, protect investors, and uphold high governance standards, and thus creating trust, it can also be a barrier:

Strict corporate governance requirements, especially around board independence, executive pay, and shareholder voting, can deter founders who want to retain control. Comparatively, the US offers more flexibility, especially for dual class share structures that allow founders to maintain control while going public.

For fast-growing startups and international firms, the regulatory burden in London often outweighs the benefits of listing there.

Conclusion

The London Stock Exchange is still a respected financial institution, but to remain competitive, it must adapt. That could mean:

- Encouraging regulatory reform that makes listings more accessible without sacrificing oversight.

- Supporting a stronger growth investing culture among UK investors.

- Attracting more international companies with competitive incentives and investor engagement.

The UK government has already been looking at some of these issues including looking at reforms to the pensions industry and encouraging savers to invest more rather than saving in cash via potential reforms to ISA allowances. However these carry the risk of treating the symptoms rather than the underlying causes. However, with that in mind, unless the UK can expand its capital base, modernize its investor ecosystem, and offer a more flexible regulatory environment, it risks falling further behind the global race for listings.