Public Equity in Decline.

• Author: Van Doren, Peter
• Position: Working Papers: A SUMMARY OF RECENT PAPERS THAT MAY BE OF INTEREST TO REGULATION'S READERS.

* "Public versus Private Equity," by Rene M. Stulz. November 2019. SSRN #3486578.

In 1975, the United States had 4,927 publicly traded firms. That number rose over the next two decades, peaking at 7,576 in 1997. But by the end of 2018 the United States had only 3,613 listed firms. In addition, public firms have returned capital to shareholders on net; from 1998 to 2016, U.S. firms repurchased shares in excess of share issuance by $3.6 trillion.

Over that time, the use of private equity has increased rapidly. The number of companies backed by private equity funds in the United States doubled from 2006 to 2017. Private equity net asset value has grown at twice the rate of public market capitalization globally.

This study argues these changes have come about because of the increased importance of intangible rather than physical assets in business. Public markets can value intangible assets. Many firms, such as Apple, have extremely high stock valuations relative to their tangible assets. But young firms with no track record whose success depends mostly on investments in intangible assets are likely to have difficulty raising funds in...