Is the American Public Corporation in Trouble?
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American public corporations have seen significant volatility in equity value since 1999, with a notable shift towards fewer, larger, older, and less profitable firms.
I suspect much of what they are describing in such bearish terms is a function of technological change as opposed to Jensen's agency problem (private equity being a better model then public), but some striking numbers, think you will enjoy it. Kathleen Kahle and Rene Stulz, "Is the American Public Corporation in Trouble?"National Bureau of Economic Research, November 1, 2016, https://papers.ssrn.com/sol3/papers.cfm"...From 1999 through 2015, the equity value of American public corporations is on a rollercoaster, falling from $22 trillion in 1999 to $11 trillion at the end of 2008, before increasing to close to $22 trillion at the end of 2015....Americanpublic firms are very different now compared to 1975 or 1995.There are fewer of them, but they are larger and older.They are not more levered, but they are somewhat less profitable. They have much more intangible capital. They invest less. Manufacturing and small public firms are scarcer. Service firms are more important and so are firms for which R&D investments exceed capital expenditures. This evolution appears to have been little affected by the credit crisis in that trends that are in place before this crisis eventually resume after the crisis..... American firms that remain public are survivors. Few firms want to join their club.A small number of firms account for most of the market capitalization, most of the net income, most of the cash, and most of the payouts of public firms.At the industry level, revenues are more concentrated, so there are fewer public firms competing for customers. There is a large fraction of firms that do not earn profits every year and that fraction is especially large at the end of the sample period. The importance of firms that make losses shows that many public firms are fragile and helps explain the high level of delists. Accounting standards do not reflect the importance of intangible assets for these firms and appear to be biased against investments in intangible assets. Such a bias may make it harder for executives to invest for the long run. As a whole, public firms appear to lack ambition, proper incentives, or opportunities. They are returning capital to investors and hoarding cash rather than raising funds to invest more...."
