Expanding the On-Ramp: Recommendations to Help More Companies Go and Stay Public
SIFMA and a group of partner organizations share a common concern that the decline in public companies has created fewer opportunities for American families and businesses. This report offers recommendations for strengthening U.S. public capital markets by helping more companies go and stay public:
- Enhancements to the JOBS Act
- Recommendations to Encourage More Research of EGCs and Other Small Public Companies
- Improvements to Certain Corporate Governance, Disclosure, and Other Regulatory Requirements
- Recommendations Related to Financial Reporting
- Equity Market Structure
See also:
Excerpt
Introduction
“Going public” has long been the goal of entrepreneurs who start a business from scratch, grow it into a thriving enterprise, then have the opportunity to offer shares to the general public through an initial public offering (IPO). Completing an IPO allows our nation’s fast-growing and most innovative companies to raise the capital needed to create jobs and expand opportunities for their employees and the customers they serve. Public offerings also allow “Main Street” investors to own a direct economic stake in the success of American enterprises.
The benefits that accrue to our economy and the jobs market when more companies are willing to go public are significant. A 2012 study by the Kauffman Foundation estimated that the 2,766 companies that went public from 1996 to 2010 collectively employed 2.2 million more people in 2010 than they did before they went public, while total sales among these companies increased by over $1 trillion during the same period. Another study by IHS Global Insight in 2010 found that 92% of a company’s job growth occurs after it completes an IPO.
The public capital markets are also dynamic and help spur innovation through competition. Only about 12% of Fortune 500 companies in 1955 were still on the list in 2014, while the other 88% either have gone out of existence, merged with another company, or fallen out of the Fortune 500. This dynamism has forced businesses to change with the times or be replaced by new entrants with innovative ideas and products that meet the needs of consumers and an ever-changing marketplace. In other words, the public capital markets facilitate the fast pace of innovation that has long defined the American economy and improved our standard of living.
Regrettably, over the years, the public company model has become increasingly unattractive to businesses: the United States is now home to roughly half the number of public companies than existed 20 years ago, while the number of public companies in the United States is little changed from 1982.4 Not only are fewer companies going public, but the companies that do are typically doing so much later in their lifecycle. When companies go public at a relatively mature age, many of the early stage returns generated by those businesses accrue to institutional investors such as private equity funds or wealthy individuals who are allowed and able to invest in private offerings.