Current Events Assignment. How the Article Relates to Finance Theory

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Current Events Assignment
Article Summary
The article “The Powerful Forces Reshaping America’s Capital Markets” by Richard Henderson and Miles Kruppa depicts the reasons why the number of companies listed publicly in the stock market has declined progressively since the 1990s. WeWork investors were surprised by the firm’s decision to purchase a jet, Gulfstream G65O, worth $60 million in 2018. However, the company does not sell its shares to the public. A year later, WeWork is planning to sell its Gulfstream to raise capital, and Japan’s SoftBank Group provided it with a rescue package of $8 billion valuations (Henderson and Kruppa). Despite all the challenges that the company is facing to raise capital, it is not considering the option of trading its shares in the United States of America (USA) stock market. WeWork called off its Initial Public Offerings (IPO) and returned to private investors. The company said that it was not ready to face the powerful forces reshaping the public capital market of the USA.
For the last twenty years, the number of firms listed by the USA stock market has reduced by almost a half. Although searching for private investors is not straightforward, many companies do not find it profitable to sell shares to the public. Indeed, share buyback is one of the significant problems that make a firm listing on the stock market not lucrative like it was in the 1990s. Currently, many companies prefer to stay private for an extended period so that they can get funded by private investors. The other reason why many firms are backtracking to private equity is because they can conceal losses by raising more money, which cannot be done when a company is publicly listed. Barrack Obama’s administration implemented the Jobs Act of 2012 to support medium-sized businesses by easing the process of IPO registration (Henderson and Kruppa). Nevertheless, the act did not entice many firms to sell shares to the public as anticipated. Consequently, the majority of companies, such as T Rowe Price and Fidelity Groups, are using a direct listing to allocate their shares in an IPO.
How the Article Relates to Finance Theory
Henderson and Kruppa’s article is critical to illustrate various concepts of capital budgeting and an IPO. First, one of the significant components that companies consider when deciding whether to sell their shares to the public is the growth rate. Besides, the present value of growth opportunities (PVGO) refers to the value of the stock that corresponds to the expectations of investors. For instance, WeWork investors expected the ...