Eclipse of the Public Corporation or Eclipse of the Public Markets?

11 Pages Posted: 10 May 2018

See all articles by Craig Doidge

Craig Doidge

University of Toronto - Rotman School of Management

Kathleen M. Kahle

University of Arizona - Department of Finance

G. Andrew Karolyi

Cornell University

René Stulz

Ohio State University (OSU) - Fisher College of Business

Multiple version iconThere are 3 versions of this paper

Date Written: Winter 2018

Abstract

The authors look back at Michael Jensen's 1989 article “The Eclipse of the Public Corporation.” They find some of his predictions have been borne out but other important ones, not. Jensen concluded that the publicly held corporation was in decline and had outlived its usefulness in many sectors. He argued that agency costs made public corporations an inefficient form of organization and that new private organizational forms promoted by private equity firms would likely replace the public firm. The number of public firms in the U.S. has declined significantly but there are still many hugely profitable and successful public companies. U.S. public markets are still well‐suited for firms with mostly tangible assets. So, what we are really witnessing is an eclipse not of public corporations, but of the public markets as the place where young firms with mostly intangible capital seek their funding. This is especially true when the usefulness of the intangible assets has yet to be proven. Sometimes the market is extremely optimistic about some intangible assets, but otherwise firms with unproven intangible assets may be better off funding themselves privately. This evolution has a downside: investors limited to public markets are cut off from investing in high intangible‐asset firms. Additionally, as fewer firms remain publicly listed, fewer firms will be transparent to society.

Suggested Citation

Doidge, Craig and Kahle, Kathleen M. and Karolyi, G. Andrew and Stulz, René, Eclipse of the Public Corporation or Eclipse of the Public Markets? (Winter 2018). Journal of Applied Corporate Finance, Vol. 30, Issue 1, pp. 8-16, 2018. Available at SSRN: https://ssrn.com/abstract=3176244 or http://dx.doi.org/10.1111/jacf.12272

Craig Doidge (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-946-8598 (Phone)

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Doidge

Kathleen M. Kahle

University of Arizona - Department of Finance ( email )

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

G. Andrew Karolyi

Cornell University

Ithaca, NY 14853
United States

René Stulz

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

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