Going Public Secretly The SEC’s Unavailing Effort to Increase Initial Public Offerings Through Confidential Registration

Abstract

In an effort to reverse the declining number of IPOs seen over the past two decades, newly-appointed SEC Chairman Jay Clayton announced in mid-2017 that any company seeking to go public could now initially file its registration statement confidentially rather than publicly. This announcement effectively extended a policy that had originally only applied to emerging growth companies—firms with less than $1.07 billion in revenue during their last fiscal year—to larger companies. Because there are advantages to confidentially filing a registration statement, this new policy was meant to encourage more large firms to go public and, as a result, increase the overall number of IPOs.

This Note empirically examines the effect of this policy change over the course of its first year to analyze whether it has succeeded in effectuating more IPOs in the marketplace. The data suggest that this new policy has failed. And because it affects a relatively small number of firms, it will likely continue to fail to meaningfully increase the number of IPOs. This Note argues that in order to encourage more companies to go public, the SEC and Congress must stop focusing on changes to the process of going public and instead make being a public company more attractive to both smaller firms, which have the potential to increase the number of IPOs, and larger firms, which can drastically increase the amount of overall public capital raised—another necessary metric in evaluating the success of the IPO market.

In recent years, benefits granted to private capital markets have enabled them to flourish as viable alternatives to the public markets. This has led to greater societal inequality since average investors are often shut out from private investments, such as venture capital and private equity. Therefore, this Note argues that in order to save the public markets, benefits awarded to private capital must be reduced. In addition, this Note presents new proposals to further mitigate the structural realities that incentivize companies to remain private and, instead, encourage them to go public: (1) award firms that go public temporary exemptions from burdensome regulations that apply to public companies, such as the Sarbanes-Oxley Act; and (2) offer tax credits to companies that conduct IPOs. Enacting such policies would help ensure more of today’s companies see the public markets as attractive sources of capital once again.