Tuesday Topic: The Shrinking Stock Market

I worked for a public company as their VP of investor relations for 4 years. This was during the early 2000’s (picture the advent of reg FD, SOX, Enron/WorldCom/Tyco, etc). Life as a public company is hard and since private capital is more readily available, i think that is the path of least resistance. The allure/prestige of public life is outweighed by regulation, volatility and sometimes lack of control on market factors (ie your sector may be out of favor or you’re in same boat with some other players who are in the news. And usually not for good reasons). Also, it used to be that even small banks were listed on the exchanges as a matter of public pride and interest. But i think most figured out the filings, investor communication and the lack of need/use of external capital/currency was an additional burden to increasingly demanding bank regulations.

That all said, there is a need for public companies for people to invest in and also to further the American dream, especially for retirement. And even the exchanges have undergone some reduction with technology. I remember standing on the floor of the nyse with lots of people. Today that floor has 1/5th of the people and looks like a pedestrian walkway before the sidewalks are rolled up at 5pm at night.

Sent from my iPhone

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The number of public companies in the U.S. were sliced by more than half over 20 years. There were 3,627 publicly traded compared in 2016 versus more than 8,000 in the mid-1990s, The New York Times reported this week. While not directly related to banking, I picked it for our Tuesday Topic because it surprised me, and figured you might be surprised, too.

The Times based its story on a report for the National Bureau of Economic Research by an Ohio State banking professor who argues the trend has implications for our economy, innovation, and transparency. "These changes are dramatic and they raise a number of important questions: How did we get here? Why did the universe of public firms shrink so much? Will it keep shrinking? How have the listed firms changed as a result of this evolution? And perhaps most importantly, what is the overall economic impact of such dramatic change in the composition of listed firms?"

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Barb Rehm
Senior Managing Director
Promontory Interfinancial Network
Arlington VA
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