DISCLOSURE: The issue of “ROI of regulation” has been elevated once again, specifically in context to XBRL being viewed as a fiscal barrier for reporting-micro and smallcap companies. If you follow this blog or have spoken with our executives, you’re familiar with our proactive stance on reducing the cost of XBRL compliance… and “spending more” on initiatives that spur growth: aka marketing and shareholder communications. We promote a balanced approach to corporate transparency.
A fascinating report was posted on the Harvard Law School Forum of Corporate Governance and Financial Regulation blog (3/10/2014) by Steven M. Davidoff, Professor of Law and Finance at Ohio State University College of Law – soon to be Professor of Law at the University of California, Berkeley School of Law.
As the title states, Disappearing Small IPO and Lifecycle of Small Firm, analyzed the maturation of smallcap companies – and the cause for few and fewer smaller companies going (and successfully staying) publicly listed.
From the report:
Our findings do not support the regulatory explanation for that dearth [ of small IPOs ] but instead we theorize that the evidence supports to a decline in investor demand. Namely, these small IPOs have simply not performed well. They delist at high rates and remain small when listed. This evidence points against legislation such as the JOBS Act or other regulatory tinkering having any material effect on the lifecycle of IPOs or the IPO market itself.
Instead, our conclusions support a counter-narrative that the small IPO drought is simply due to market judgments and changes in the market ecosystem. Investors appear to no longer want to invest in these opportunities because the return is not commensurate with the risk taken. With the decline of supply side forces that pushed these IPOs into the market, they have simply disappeared due to their inability to survive and grow in the public markets.
You can read Professor Davidoff’s synopsis here. Scroll to the bottom of that page to download the PDF of the report.
Coincidently, Forbes just published (3/6/2014) an article on the costs v. benefits of SOX. You can read that article here.
We speak with micro and smallcap companies executives each day – and we are keenly aware of their frustrations. Both Vintage Filings and PR Newswire offer services and –frankly– pricing expressly tiered for small companies and the regulatory cards that ALL companies are dealt.
The Davidoff report’s bottom line indicates that investors are not hearing and/or understanding the corporate vision. What do investors want? This report will tell you.
Have a great day.