Grant Thornton: Urgent Action Needed to Stem Decline of Publicly Traded Companies

A new study from Grant Thornton documents an alarming 22% decline in the number of publicly traded U.S. companies since 1991 and lays the blame on low cost electronic trading and increased regulation such as Sarbanes-Oxley. Interesting, then, that in its prescription for how to reverse the trend, the accounting firm does not suggest repealing or rolling back SOX. In fact in a draft email it is suggesting supporters send to congress, GT specifically notes that the proposed changes would comply with SOX:

“Alternative Public Market Segment: A public market solution that provides an economic model to support the “value components” (research, sales and capital commitment) in the marketplace. This solution would establish a new market segment that benefits from a fixed spread and commission structure. It would be subject to traditional SEC registration and reporting oversight (e.g., annual and quarterly reporting, Sarbanes-Oxley compliance).”

“Enhancements to the Private Market: A private market solution that enables the creation of a qualified investor marketplace consisting of both institutional investors and large accredited investors that allows issuers to defer many of the costs associated with becoming a public company before they are ready for an IPO.”

Might be instructive to see a chart of Grant Thornton’s tax compliance advisory business income over the same time frame.

Other findings from the study:

• The U.S. listed markets — unlike other developed markets — have been in steady decline, with no rebound, since 1997.
• The U.S. should have twice the number of listed companies it currently has.
• The U.S. markets’ last growth phase was before the Dot-Com Bubble.
• The U.S. lags far behind other global markets. Asian markets are growing even faster than GDP.

The full Grant Thornton paper is available here and a helpful summary from Venture Capital Dispatch is here. Elsewhere, Paul Kedrosky takes issue with the paper’s recommendations, arguing that turning back the clock is not the answer:

Technology has changed the way growth companies are produced, funded, and sold in this country. Some people might not like it, but not liking disruptive change is the response of most industries that have been disintermediated.

Comments

[Jasper M:]

Note the Assumption: a decline on the number of publicly traded companies is a Bad Thing.
In fact, the previous expansion of that number is the more likely negative symptom, as it likely proceeds from credit inflation. Sort of like a fever - a drop in temperature afterwards is usually a good thing.

I suspect the real concern here is a by a bunch of accountants, seeing somewhat less accounting to be done. HORROrs!

Nov 10 05:25 PM

[Dante311:]

One thing that I am curious about is whether or not the amount of registered companies in the US is also declining. Is it possible that firms are making trend towards staying private because of regulatory complications or possibly because of the exposure to traders? I am currently looking into this more but was interested to see if others have thought about similar rationals.

Nov 17 02:10 PM

[Dante311:]

"lays the blame on low cost electronic trading and increased regulation such as Sarbanes-Oxley."

This is actually not the case. They never propose that the blame should be placed on SOX. Here is a snippit from the report:

"Grant Thornton argues that the root cause of 'The Great Depression in Listings' is not Sarbanes-Oxley, as some will suggest."

Nov 17 04:22 PM