There was an insightful letter to the editor in today's WSJ:
Regarding “IPO Market Cools As Private Deals Rise” (page one, Aug. 1): Is it really hard to understand why a company would prefer to sell shares to a private-equity firm staffed with highly educated professionals who not only will serve on the board but contribute value as opposed to going public and being second guessed by every plaintiffs’ lawyer, SEC staffer and Justice Department enforcer who has never held a job outside of the regulatory quagmire in Washington?
The IPO is no longer the desired outcome because of litigation and burdensome and expensive regulation. The end result is that affluent investors in private-equity funds continue to hold stakes in promising upstarts while common investors get stuck with their parent’s and grandparent’s portfolio options.
I made a similar argument at length in Corporate Governance and U.S. Capital Market Competitiveness (October 22, 2010). UCLA School of Law, Law-Econ Research Paper No. 10-13. Available at SSRN: http://ssrn.com/abstract=1696303:
During the first half of the last decade, evidence accumulated that the U.S. capital markets were becoming less competitive relative to their major competitors. The evidence reviewed herein confirms that it was not corporate governance as such that was the problem, but rather corporate governance regulation. In particular, attention focused on such issues as the massive growth in corporate and securities litigation risk and the increasing complexity and cost of the U.S. regulatory scheme.
Tentative efforts towards deregulation largely fell by the wayside in the wake of the financial crisis of 2007-2008. Instead, massive new regulations came into being, especially in the Dodd Frank Act. The competitive position of U.S. capital markets, however, continues to decline.
This essay argues that litigation and regulatory reform remain essential if U.S. capital markets are to retain their leadership position. Unfortunately, the article concludes that federal corporate governance regulation follows a ratchet effect, in which the regulatory scheme becomes more complex with each financial crisis. If so, significant reform may be difficult to achieve.