Why the stockmarket is disappearing

Large companies such as ByteDance, OpenAI and Stripe are staying private

Apr 18th 2024

Companies including ByteDance, Openai, Stripe and SpaceX have valuations in the tens or even hundreds of billions of dollars, and remain private.

Jamie Dimon, JPMorgan’s boss, identifies demand for environmental, social and governance reporting and the pressure of quarterly earnings reports as part of the trend’s explanation.

원인
But for the most part, the disappearing stockmarket is a side-effect of something more positive for company founders: they simply have more options. Private-equity funds managed $8.2trn by the middle of 2023, according to McKinsey, a consultancy—more than twice the amount in 2018.

Founders have many reasons to stay private. The rise of intangible assets is a big one. Such assets range from copyrights, software and other intellectual property to brand recognition. René Stulz of Ohio State University notes that requirements for disclosure of financial information and strategy favour companies with tangible assets, such as machinery and real estate. When a firm announces it owns a building, competitors can hardly steal the asset. When it comes to ideas, research and other intangibles, the less rival firms know, the better. If a company tries to withhold information when listing, it may be undervalued. Worse still, it may be breaking the law.

우려 사항
Public markets are more transparent than private ones. Thus their reduced importance matters not just for investors, but for regulators monitoring financial stability and analysts assessing the market.

Stocks also still tend to be the cornerstone of portfolios for less sophisticated retail investors.

Alexander Ljungqvist, Lars Persson and Joacim Tag, three economists, suggest that the disappearance of markets may reduce public support for business-friendly government policies, as voters benefit less from corporate profits.

잠재적 대책, 정책

One option that might appeal to regulators is to impose tighter requirements on large companies that choose not to list, in order to close the gap between the rules faced by public and private firms.

A less coercive option would be to reduce the amount of information that companies are forced to share when they go public.

잠재적 대책의 문제점
Although an assessment in 2015 indicated that it had boosted initial public offerings by 25%, another in 2022 suggested that it had done so by encouraging low-quality offerings that ended up underperforming the market.

그래서…
As a result, the best hope for stockmarkets may lie with the greed of private-equity investors. Public markets still provide an unparalleled exit route for those who would like to turn corporate holdings into ready cash. Bain, another consultancy, notes that private-equity funds are currently sitting on $3.2trn in unsold assets. At some point, end-investors will want the money back. But until then, Mr Dimon is right: shrinking public markets are cause for concern.