The Listings Ecosystem : Aligning incentives

Abstract

Companies deciding to go public enjoy a number of advantages that complement the original intention of their founders’ capital raising and risk-sharing needs. These include improved liquidity, transparency and visibility. In addition, growth in publicly quoted companies is a key driver of economic development, generating healthy competition and creating jobs. The apparent decline in the number of company listings, at least in developed markets, is therefore worrying for investors, exchanges and regulators alike. Unintended consequences of regulations, lower capital needs, expansion of alternative funding sources, and changing market structure, amongst others, have been suggested as possible causes to this systematic decline. We discuss this important issue from an asset manager’s perspective. We provide a framework that attempts to address this decline, and propose possible remedies that could be taken by the various stakeholders to encourage more listings. We argue that, at its core, the listing ecosystem needs to establish a new equilibrium to address the evolving conflicts of interest between founders, early investors, underwriters and future shareholders. We also propose some practical steps that could be taken by other stakeholders including broker/dealers, exchanges and index providers.