Risk & Compliance

Square-Off: Should IPO Regs Be Relaxed?

Is excessive disclosure regulation a primary cause of the long slump in IPO activity? There's hardly a consensus on that among experts.
David McCannOctober 30, 2017
Square-Off: Should IPO Regs Be Relaxed?

In a May op-ed in the Financial Times, Harvard University professor Hal Scott lowered the boom on the SEC for what he called its “stringent” disclosure regulations for initial public offerings.

A strong IPO market is economically desirable because going public allows companies to grow and create jobs. Regardless, the U.S. market has spent most of the past decade in a fairly pronounced slump. If historical norms had held, the number of public companies today would be at least 1,500 greater, Scott noted.

Among many things he said “need fixing,” he highlighted two: excessive securities litigation against public companies, which he proposed could be addressed by adopting mandatory arbitration for claims; and excessive IPO disclosure requirements, for which he didn’t recommend a specific cure.

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The disclosure regime, unlike those in some other countries, encourages investors to “put short-term performance ahead of long-term growth,” Scott wrote. He suggested only that the SEC “convene a working group of private companies and their private funders to recommend a disclosure regime that would better suit young companies.”

Intrigued, we made a call for opinionated essays on whether the regulations should indeed be eased, so as to prop up the IPO market. As it turned out, there were diverse opinions on what, if anything, should be done — although none of those who responded suggested that over-regulation was a primary culprit in the market’s malaise (nor did any of them mention securities litigation, for that matter).

We’re not saying Scott was wrong. Opinions often abound regarding the causes of macro trends. But perhaps those who think nothing much need be done to boost the flow of IPOs are onto something, as the market has lately shown some signs of finally emerging from the doldrums.

Enjoy the articles in this forum, and please tell us your thoughts on the topic.

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