Stock Market: Many companies choose not to list, and this is why
Money bills markets Link Its all-time high in 2021, adding significant value to companies that are riding the wave, even as they allow for a pullback in recent weeks. We are also in the middle of a boom year to float, with many boards capitalizing on investor enthusiasm for stocks. However, companies have been delisted from the stock market until larger numbersIn fact, this trend has been going on for quite some time.
number of people included comp It peaked worldwide at 45,743 in 2014, but has fallen to 43,248 by 2019 to me World Bank. Numbers in the specialty markets Like the US, UK, France and Germany are all trending downward.
in 2020There were 47 acquisitions of private companies worth a total of $40bn (£29bn), well below 62 deals worth $88bn in 2019, although the numbers are up significantly in Asia. On the other hand, 2021 was a huge year: the privatization is already past its previous peak from 2007, with a record number of transactions already made. Exceeded 800 billion US dollars.
total included comp all over the world
Some of the privatization decisions have been driven by massive buying by private equity groups such as Blackstone, KKR and Apollo. Believing there are deals with companies in the wake of the pandemic and Brexit, these investment firms have made 113.5 billion US dollars of deals in the first half of 2021 alone. That’s more than double the previous six months and the strongest half year since the first half of 2007.
The big bend
For one thing, there is enough money to be found elsewhere that companies don’t need to raise money through flotation. The world’s central banks have been increasing the money supply by cutting interest rates and “printing money” through quantitative easing (QE) since the 2007-2009 financial crisis, but the latest round of quantitative easing in response to the pandemic has raised it to a whole new level. The current rate of expansion of the money supply is faster than the growth of economies. With very low lending rates, all that money is chasing investments. The listing in the stock market starts looking boring when you can just borrow money very cheaply instead.
The second attraction of being private is organization. Listed companies have become tightly regulated Against the backdrop of corporate governance disasters such as WorldComAnd EnronAnd Galleon group and recently wired card. These limitations They have motives Many companies bypass public scrutiny by choosing to be private instead.
Another problem with the audience markets How illogical they became.
Now that amateur traders can easily buy and sell stocks through platforms like eToro and Robinhood, the company’s valuations are at the mercy of their whims. Watch GameStop and other stocks that surfaced earlier this year thanks to a Reddit group WallStreetBets.
Amateur traders can also choose to automatically copy trades of professionals or famous traders on a platform like eToro. The decisions of a popular market trader can mean that many people are doing the same trade, increasing volatility across assets that were not yet relevant.
Likewise, tweets and memes can send ratings to high or sunken levels. A good example of that Elon Musk He raised the price of Dogecoin by making positive hype about the cryptocurrency on Twitter, including referring to himself as the #father. No wonder many corporate boards prefer to stay away from such a volatile environment.
Is it worth it?
Sometimes, when business leaders in the past decide to be private, they reverse it later. For example, Michael Dell He took his computer company in 2013 only to re-list five years later. He catapulted the company to a stronger position that he felt would be recognized by the markets. musk itself contemplation About making Tesla private, having felt the auto company was undervalued by the markets in the past, though now it’s a different story after the stock price soared in the past two years.
The improvement in the company’s market sentiment is also not the only argument for staying listed. Greater transparency can be a selling point for investors, and selling stock to them is not the only way to profit from that. Businesses can always choose loans or bonds as alternatives – thus limiting their exposure to social media influencers and amateur merchants.
Rather than living in fear of negative emotions, companies may see this as a challenge and think about how to respond better. This may include ramping up public relations, advertising, and lobbying strategies in order to better explain the company to the outside world.
Company executives can still get hurt by big swings in their stock price because that’s usually one of the performance indicators that determines what they get. But again, cross-out is not the only way to solve this problem. Alternatively, companies can rethink their performance indicators – perhaps focusing more on environmental performance, for example, in anticipation of the fact that regulations in this area are bound to increase.
Another potential medium-term advantage of the listing relates to regulation. The more companies that go private, the more likely regulators will impose more rules on them to protect their investors and prevent fraud. They may even be tempted to raise taxes on private companies to make up for the lack of regulatory scrutiny. In this sense, the allure of going into the private sector may turn out to be fool’s gold.
Karl Schmidersfinance professor International Institute for Management Development (IMD) And Patrick ReinmuellerProfessor of Strategy and Innovation International Institute for Management Development (IMD)