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Is the U.S. Public Corporation in Trouble?

39 Pages Posted: 16 Nov 2016 Last revised: 21 Jul 2017

Kathleen M. Kahle

University of Arizona - Department of Finance

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

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Date Written: May 1, 2017

Abstract

We examine the current state of the U.S. public corporation and how it has evolved over the last 40 years. After falling by 50 percent since its peak in 1997, the number of public corporations is now smaller than 40 years ago. These corporations are now much larger and over the last twenty years have become much older; they invest differently, as the average firm invests more in R&D than it spends on capital expenditures; and compared to the 1990s, the ratio of investment to assets is lower, especially for large firms. Public firms have record high cash holdings and, in most recent years, the average firm has more cash than long-term debt. Measuring profitability by the ratio of earnings to assets, the average firm is less profitable, but that is driven by smaller firms. Earnings of public firms have become more concentrated – the top 200 firms in profits earn as much as all public firms combined. Firms’ total payouts to shareholders as a percent of earnings are at record levels. Possible explanations for the current state of the public corporation include a decrease in the net benefits of being a public company, changes in financial intermediation, technological change, globalization, and consolidation through mergers.

Keywords: Public Firm, Delist, IPO, Leverage, Equity Issuance, Repurchases, Cash Flow

JEL Classification: D22, G24, G30

Suggested Citation

Kahle, Kathleen M. and Stulz, René M., Is the U.S. Public Corporation in Trouble? (May 1, 2017). Journal of Economic Perspectives, Forthcoming; Fisher College of Business Working Paper No. 2016-03-23; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 495/2017; Charles A Dice Center Working No. 2016-23. Available at SSRN: https://ssrn.com/abstract=2869301 or http://dx.doi.org/10.2139/ssrn.2869301

Kathleen Kahle (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-7489 (Phone)

Rene Stulz

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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