Commentary

Facebook IPO Dud: Is the Future of Public Companies at Risk?


     
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Early reports describe Facebook’s much-ballyhooed IPO as a dud. This seems to support The Economist’s worries about the future of the public company, a theme raised by Michael Jensen in a famous 1990 article. Indeed, the corporate form has been hammered lately, the victim of particularly burdensome regulation under the Sarbanes-Oxley Act and other schemes. As noted in the Economist piece, the number of public companies, as well as the number of IPOs, have declined sharply over the last decade.

I’m certainly a fan of private equity (along with proprietorships, partnerships, cooperatives, and other organizational forms). But, as Art Carden and I discussed in a recent Mises Academy course, reports of the death of the public company are greatly exaggerated. Despite the additional regulatory scrutiny, the agency problems associated with diffused ownership, and other challenges, the corporate form is still an effective means of raising large amounts of capital.

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Peter G. Klein is Research Fellow, Associate Editor of The Independent Review, and Member of the Board of Advisors of the Center on Culture and Civil Society at the Independent Institute; Associate Professor of Applied Social Sciences and Associate Professor of Public Affairs at the University of Missouri; and Director of the McQuinn Center for Entrepreneurial Leadership.