With the market for initial public offerings irretrievably broken, a new system must be developed to take its place, a new study says.

In a report entitled, “Why Are IPOs in the ICU?” auditor and consultancy GrantThornton calls for a new government-regulated “Second Market” open to all investors that would let developing companies raise capital.

Unlike the New York Stock Exchange or the Nasdaq, the Second Market would let companies decide whether they wanted to list. In a throwback, the market would use brokers to execute trades instead of having participants trade electronically.

The study’s authors, David Weild and Edward Kim, suggest that installing brokers as intermediaries would seed a new crop of investment banks akin to one-time IPO specialists like Alex. Brown, Hambrecht & Quist, and Robertson Stephens.

The study says that efforts to create credible alternatives to an IPO have centered on private placement markets. These include the Nasdaq Portal Alliance and Goldman Sachs Tradable Unregistered Equities (GSTrUE).

The current alternative markets, however, cater to a small universe of companies and admit only institutional investors, offering little liquidity, the report says.

The study attributes the dearth of IPOs not only to 2008’s credit crunch, but to a trend by venture capitalists to avoid riskier startups and to sell many of their portfolio companies to corporate acquirers.

Selling out to large corporations, the authors argue, “leaves a lot of shareholder return, economic growth, and job formation on the table.”

Also contributing to the decline of the IPO market, according to the study, was the U.S. Securities and Exchange Commission’s Regulation Fair Disclosure, which damaged the economics of providing company research coverage.

The study contrasted 1991 to 1997 period--that's when almost 80 percent of all U.S. IPOs were worth less than $50 million--to 2000 to the present when such small IPOs accounted for about 20 percent of such deals.