Rumours of the Death of the American Public Company are Greatly Exaggerated

For at least a century, the publicly traded firm has dominated America’s corporate economy.  Might this era be coming to an end?  There has been much speculation along these lines.  For instance, in late 2018 distinguished corporate law academic Frank Partnoy hailed in the Atlantic (https://www.theatlantic.com/magazine/archive/2018/11/private-inequity/570808/) “the shrinking of public markets.”   The number of public companies has indeed declined markedly since 2000.  Nevertheless, as I argue in my article and the book from which the article draws (/news/book-announcement-public-company-transformed), the American public company not only remains a dominant economic player but will continue to do so for the foreseeable future.

I acknowledge in my article that companies do leave the stock market due to private equity-led public-to-private buyouts.  Nevertheless, large public firms are very rarely taken private, a few high profile exceptions in the late 1980s and the mid-2000s aside.   It is also true that there has been since 2000 a marked reluctance of companies to carry out initial public offerings, due largely to lukewarm investor interest and to firms having greater scope than ever to raise capital without having to go to the stock market.  Correspondingly there are now dozens of “unicorns”, these being fledgling companies valued at $1 billion or more that are still private.  Nevertheless, successful American business enterprises rarely remain out of the public domain forever.  Instead, they either are bought by a publicly traded company or go public themselves to make it easier to carry out acquisitions and to create liquidity for existing shareholders.

It appears likely that during the coming months numerous unicorns will follow ride-hailing company Lyft Inc. and go public.  Even without a surge in the number of initial public offerings, however, the public company is destined to remain a key economic actor.  Public companies are bigger now than ever.  Hence, as measured by the ratio of aggregate market capitalization to gross domestic product, the public company is currently more important relative to the U.S. economy than it ever has been.  Absent an unforeseen economic or regulatory cataclysm the publicly traded corporation is destined to remain a pivotal feature of the American economy for some time to come.