<p>I don't know exactly how the numbers would work out, but you would expect an equilibrium but it will depend on many factors.</p>

<p>A complication is that you have public companies taken private and private companies that never go public.  It may be there is some equilibrium between these as they are unlikely to be equivalent. Ex public companies are often highly levered,  while never public are often debt free and cash rich.</p>

<p>Particular important factors would be interest rates and credit spreads.  This is because it boils down to the distribution of capital.  If there is lots of money available to lend then LBOs become attractive and companies can be taken private. If there is strong demand for equity then IPOs become easy.</p>

<p>I think an economy with a shortage of public companies would show overvalued equities and hence IPOs are encouraged (think dot com bubble - shortage of public web companies vs demand). If debt is cheap and there are too many public companies then you will see either take overs or LBOs.</p>

<p>I suspect the effect is most visible within sectors rather than the whole economy.</p>

CC BY-SA 3.0
2015-05-31T10:39:15.413Z
2015-05-31T10:39:15.413Z
Corvus
<p><a href="https://en.wikipedia.org/wiki/Private_equity_fund" rel="nofollow">Private equity funds</a> are increasingly taking formerly <a href="https://en.wikipedia.org/wiki/Public_company" rel="nofollow">public companies</a> off the exchanges. Is there an economic reason for any public companies to exist and what is the equilibrium share of public companies in the total corporate 'population'?</p>

CC BY-SA 3.0
2015-05-29T16:57:21.463Z
What is "equilibrium level for the share" supposed to mean?
Michael Greinecker
CC BY-SA 3.0
2015-05-29T18:35:25.507Z
@MichaelGreinecker - fixed.
Deer Hunter
CC BY-SA 3.0
2015-05-29T19:43:17.583Z
I still don't know what equilibrium should mean here.
Michael Greinecker
CC BY-SA 3.0
2015-05-29T19:45:30.523Z
@MichaelGreinecker - the ratio of public to private equity doesn't change, a steady state is reached with all other factors held constant.
Deer Hunter
CC BY-SA 3.0
2015-05-30T12:16:47.617Z
Why should there exists such a steady state? And under what dynamic process?
Michael Greinecker
<corporate-finance>
Is there an equilibrium between privately owned and publicly listed companies?
Deer Hunter
# Is there an equilibrium between privately owned and publicly listed companies?

(Asked by: username_0 on 2015-05-29)

[Private equity funds](https://en.wikipedia.org/wiki/Private_equity_fund) are increasingly taking formerly [public companies](https://en.wikipedia.org/wiki/Public_company) off the exchanges. Is there an economic reason for any public companies to exist and what is the equilibrium share of public companies in the total corporate 'population'?

**Tags:** corporate-finance

> **Comments:**
> **username_1**: What is "equilibrium level for the share" supposed to mean?  
> **username_0**: @username_1 - fixed.  
> **username_1**: I still don't know what equilibrium should mean here.  
> **username_0**: @username_1 - the ratio of public to private equity doesn't change, a steady state is reached with all other factors held constant.  
> **username_1**: Why should there exists such a steady state? And under what dynamic process?  

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## 1 answers

### Answer by username_2 on 2015-05-31. Score: 1

I don't know exactly how the numbers would work out, but you would expect an equilibrium but it will depend on many factors.

A complication is that you have public companies taken private and private companies that never go public. It may be there is some equilibrium between these as they are unlikely to be equivalent. Ex public companies are often highly levered, while never public are often debt free and cash rich.

Particular important factors would be interest rates and credit spreads. This is because it boils down to the distribution of capital. If there is lots of money available to lend then LBOs become attractive and companies can be taken private. If there is strong demand for equity then IPOs become easy.

I think an economy with a shortage of public companies would show overvalued equities and hence IPOs are encouraged (think dot com bubble - shortage of public web companies vs demand). If debt is cheap and there are too many public companies then you will see either take overs or LBOs.

I suspect the effect is most visible within sectors rather than the whole economy.


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