Longer periods between audited (aka "accurate") results will lead to compounding errors. Fewer people at the company will have a clear idea of how the company is doing. Audits are like CI for finances.
Longer periods between audited (aka "accurate") results will lead to compounding errors. Fewer people at the company will have a clear idea of how the company is doing. Audits are like CI for finances.
I agree that would be preferable if reporting were less expensive and (legally) risky, and what you're describing is definitely closer to the original intent of the rule (that of giving investors the information available to management), but it would make being a public company even more burdensome than it already is, and the number of public corporations is already in decline.
> it would make being a public company even more burdensome than it already is
Every company doesn't have to be public. The US taxpayer underwrites US securities markets, and companies that trade on our public markets have access to some of the deepest pools of low-cost liquidity in the world. But companies are obviously free to list elsewhere.
> the number of public corporations is already in decline.
Separate problem. IIRC HBS studied this and basically the issue is we stopped enforcing our anti-competition laws a while back[1]. So we end up with a fraction of firms that each sector would financially support. Both because it creates giants that are much harder to compete against, and because it allows mergers between competing firms that AFAIK could be deemed illegal under existing laws.
1 - See, for example the Robinson-Patman Act, whose dormancy allows big box retailers to exist. This law has never been repealed.
When companies stay private longer, private capital stays tied up for longer, decreasing public liquidity and keeping bad private investments afloat for longer. Part of the creative destruction of the dot com bust was the legion of badly performing companies that went public and were thoroughly rejected by public investors, offering an exit to later investors and employees. Right now badly performing companies can limp along tying up liquidity and locking up employee equity only to head to an eventual bankruptcy or bad IPO.
> Part of the creative destruction of the dot com bust was the legion of badly performing companies that went public and were thoroughly rejected by public investors, offering an exit to later investors and employees.
That's not how I remember it. I remember lots of publicly traded company shares being gobbled even though their business plans[1] were essentially:
1. Collect underpants
2. ?
3. Profit
"Going for marketshare" and not making a profit was still popular as recently as Uber/DoorDash/etc. Cisco still (AIUI) hasn't reached back to is DotCom peak.
Are the current multiples of many tech stocks sensible?
[1] https://en.wikipedia.org/wiki/Gnomes_(South_Park)
I'm having a hard time responding to someone who's using a South Park episode as a discussion point. Like how can I debate a point made by a show that makes content reacting to the popular perception of certain ideas? That's like 2 levels removed from the actual true details.
Anyway the difference now is that those companies still exist they just take round after round of private investor capital and the employees are offered shares that will never be tradable. Were those businesses would go bankrupt in a few years before now they can take 5-10 years. Time value of money being a thing, your money will be locked up for longer in a bad investment than it would on the public markets.
> I'm having a hard time responding to someone who's using a South Park episode as a discussion point. Like how can I debate a point made by a show that makes content reacting to the popular perception of certain ideas?
The South Park episode came out in 1998, when the profitability of tech companies was… questionable, but their popularity was very high. It was social commentary on the zeitgeist and group think of the time. And it turned out the irrational exuberance was not justified for the valuations, as everyone learned post-2000.
And have we learned anything since then? What are valuations and P/E multiples now? And it goes back centuries in the past as well, so 'modern tech' is hardly the driving force:
* https://en.wikipedia.org/wiki/Technological_Revolutions_and_...
Your original post stated "the legion of badly performing companies that went public and were thoroughly rejected by public investors". The historical record shows that these companies going public were not "thoroughly rejected".
If you're using South Park and "social commentary on the zeitgeist" as a way to think about markets, I think we're not going to have a productive conversation. A public equity market in the US has a technical definition that I'm using here. You're constructing a narrative out of these things that really makes no sense. When one said that public investors reject an investment, that means they mark the price of the equity down by selling shares for a lower level.
> badly performing companies can limp along tying up liquidity and locking up employee equity
"Just raised a Series E/F/G/H/I" companies
how much of that decline is due to mergers vs failing vs new private companies being formed instead?