Comment by unknownfuture
3 days ago
> The increase in regulations, post GFC, made it impractical/impossible for small companies to go public.
Care to be more specific? "Regulations bad" is a pretty common platitude around here but you've stated your main thesis, here, without a hint of support to back it.
My observation is that the glut of available private credit has meant for at least 15 years you could just raise funds from those markets, and that's the ultimate reason IPOs have become less common.
This hasn't made it "impossible" for companies to go public. It just eliminated the need. If you can raise billions of dollars in a G round why go to the public markets at all?
They're poking at SOX and Dodd-Frank I think, but it's a bit of a specious argument, in my opinion the rise of massive private equity (plus the absurd market orientation around short term results) is more of the story, as you say.
And further, if the goal is to eliminate regulatory frictions in public markets that keep companies staying private, then you're effectively advocating for eliminating public markets.
The entire damn deal we make when a company goes public is that the company can raise money from a much broader, potentially less sophisticated investor base that don't have to be accredited, etc, and in exchange there are more stringent requirements around reporting and so forth.
So sure, we could just throw away that regulatory and social contract, but at that point the public market serves no purpose.
Regulations is a scary word for rules.
Sure. SOX reg sec 302 and 404. Section 302 is a 100% dealbreaker for most companies, so I stand by my 'impossible' threshold. My comment was simply shorthand for all the upfront and downstream costs of going public, combined with fewer exit alternatives. Auditor/directors increased/personal liability, litigious shareholders, time and attention of management, etc. And, to your point, the lower cost of capital from growth investors. But that wasn't always the case. Certainly not true during the dot-com bubble (pre-SOX). I'll leave it to the academics to try to and isolate causality.
Except the data doesn't support the claim.
Sarbanes-Oxley passed in 2002 and the number if IPOs climbed between then, in the wake of the dot-com crash, and the GFC six year later, while the median age didn't change much:
https://site.warrington.ufl.edu/ritter/files/IPOs-Age-of-Com...
If your claim was true you'd either expect a decline in IPOs or the age of those companies going up and neither is true during that period.
Now to be clear I'm not saying changes in regulation had no impact. Rather my claim is that regulations plus monetary policy and other macro effects fundamentally changed the structure of the market itself, thereby deincentivizing going public, rather than somehow acting as a break or barrier to IPOs.
Seriously? The "you can't knowingly lie in your financial statements, and you have to make an actual effort when compiling them" section?
If that's a "100% dealbreaker" to you, nobody should ever invest in your company, because you are literally complaining about not being able to defraud them!
There's no strong consensus, but there's weak consensus that post-GFC regulation is a factor behind but is not causal in any way, for the decrease in IPOs. Here's a paper [1] (well it's the paper author discussing his paywalled paper lol) exploring SOX regulations and their effects on IPOs. There's other papers and I think a good survey will help you on this topic. I don't think there's consensus on regulations being the causal factor, but it is one of many.
I thought GP was modest in calling it out as simply a contributing factor. Regulation is complicated and reaching for it should be something done with care.
(Also FWIW, I think you're being a bit cheap by appealing to culture war talking points.)
[1]: https://corpgov.law.harvard.edu/2009/09/21/the-effect-of-sox...
I think you're being oversensitive or just looking for a fight if you detect even a hint of "culture war talking points" in my comment.
It's hard for me to read '"Regulations bad" is a pretty common platitude around here but you've stated your main thesis, here, without a hint of support to back it.' as anything more than that.
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