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All-Party Parliamentary Group for Corporate Governance

27th April 2016

Jonathan Djanogly chaired a meeting of the APPG for Corporate Governance to receive the London Business School report on the “Causes and consequences of the decline of the public corporation”.

A report by London Business School, ‘Causes and consequences of the decline of the public corporation’ on behalf of the All Party Parliamentary Corporate Governance Group, questions whether the burden on UK public corporations may have become too great when compared with privately financed companies.

The report, which involved an analysis of data in public and private equity markets over the last 20 years reveals that:

  • Annual delistings have exceeded annual new listings since 1999; a 50% decline in last 20 years
  • Private equity funds have increased their total firm ownership - in the UK, for example, PE-backed firms in the mid-90s totalled 2,000. By the time of the financial crisis in 2007 the figure had risen to 14,000 and since then UK PE firms have invested in nearly 1,000 companies on average per year for an average total amount of £14 billion per year;
  • Firms are relying more on retained earnings and debt finance as a result of the cost of raising debt being so low;
  • There is a strong perception (which is not factually established) that the process of listing and raising equity finance can be onerous and expensive;
  • UK stock market capitalisation – an important indicator of the prosperity of a country’s stock market – has declined from around 188% of GDP in 1999 to around 106% of GDP in 2014.
  • Family businesses fear that listing may result in loss of control and a short-term approach.

Jonathan Djanogly MP, chair of the APPCGG , said “Taking a company public used to represent the ultimate reward for an entrepreneur. However, today the UK’s financial system has evolved and there are increasing sources of alternative financing available. The findings provide important insights into the different possibilities for business finance, which is so critical to the future prosperity of UK plc. The APPG believes that the public company remains an important vehicle for conducting business and encouraging transparency and effective corporate governance. We recommend that the Government pays attention to the threats to public companies set out in this report and seeks ways to reverse the decline in their numbers.”

Jon Moulton, founder and managing partner of the private equity firm, Better Capital, said “I very much hope that the Government and Financial Reporting Council take more notice of the effects their actions have in making public companies a less attractive place to be. Tax policies and heavy, virtually purpose free, impositions are endangering the desirability of being a UK public company.”

Professor Julian Franks of London Business School, who led the study said: “ The strong decline in delistings reflects in part the lack of active ownership in our public capital markets and the rise of private equity. The concern must be that for too many companies the public markets look too costly and less efficient than the private markets “.

| Causes and Consequences of the Decline of the Public Corporation

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