The Quiet Force Imperiling Our Booming Stock Market
Bryce C. Tingle, business law prof at U. of Calgary, writes;
Over the past 30 years, the number of companies that sell shares on markets such as the New York Stock Exchange and Nasdaq has fallen by roughly 50 percent. … I have spent more than a decade trying to understand what is going on, and I have come to believe that the culprit is public company governance, the system in which many different groups, all pursuing their own agendas, generate rules for how public companies ought to be managed. These rules, norms and regulations — which tackle such issues as who gets to be a director, how executives should be paid, in what ways companies ought to respond to climate change — are constantly accruing and building on one another until this obscure process generates towering structures that, like a great coral reef, can tear out the bottom of a boat.
From 2000 to 2020, only about 10 percent of a thousand successful venture-capital-backed companies chose to go public.
Does this mean that regular investors are fighting for the scraps, leading to a bubble in the highly valued tech stocks that are publicly traded?
Google AI tells me that US private companies are worth $14T, vs $63T public market cap. But if this $14T is concentrated in novel tech, it's significant. On the other hand, most private cap companies are small. On the third hand, it's likely comparatively little value resides in the long tail of small companies, just like the SP500. For example, Anthropic is estimated to be worth $180B, and that's from a funding round, which I would think prices it conservatively.
Counterargument: if there's a bubble in AI and other tech, and you have a successful private company, it makes sense to go public and exploit that bubble by selling shares to a starving market. Then again, it might make more sense to sell it when it's bigger, so the little guys don't get the benefit of the first phases of expansion.
NYT: fewer companies going public because of cumbersome corporate governance rules driven by fear of shareholder lawsuits.
byu/VeryStableGenius ininvesting
Posted by VeryStableGenius
4 Comments
Looks like there’s some manufactured consent developing right now to relaxing corporate law, articles like this coupled with the president pushing for 6 month financial releases as well.
From a [quick search of the data](https://fred.stlouisfed.org/series/DDOM01USA644NWDB) my immediate view is that the number of public firms jumped in the 80’s and started its return to its historical values over ~20 years. So by picking a 30-year time horizon, the author is picking the height of an anomaly in publicly traded stocks. If they’d picked 45 or 50 years ago then the number of publicly traded firms will have increased.
Edit: realizing the St. Louis fed data only goes to 2019 and doesn’t include the massive rise in SPACs that popped up around the pandemic.
I think they are forgetting the most important point. Yes, there are a lot of costs and liabilities involved in going public but why do they do it? To get access to cash. Why would you need to do that when interest rates have been near 0 for decades up until just recently? Money has never been cheaper. Couple that with the fact the rich and private equity firms are so rich and so desperate to find any opportunity in America they just buy promising companies out right making a stock offering pointless. It’s a reflection of how economically stagnant the US is.
Seems to me the numbers used to argue that public companies are too scrutinized would be the same numbers used to argue that private companies aren’t scrutinized enough.
Why go public if private equity gives you funding and the people bankrolling you have less recourse?
Is it necessarily bad if public companies have a higher standard these days compare to the prior decades?