(Newswire.net — August 26, 2020) — Can less regulation lead to increased company transparency and greater public scrutiny? Haim Toledano, a financial expert and businessman, has been asking this same question for years.
Regulation can be effective, but only if those regulations apply to all market players.
When rules only apply to some players, it creates a gap in regulation. Companies flock to less regulated areas of the market, creating an imbalance of regulators and companies. Less regulated areas see an influx of companies, while highly regulated areas see a dramatic reduction in companies.
Israel’s Capital Market Impacted by Regulations
Israel’s capital market saw these very same effects: an imbalance in regulation. These effects were caused by a widened regulation gap between public and private entities fueled by media exposure and increased financing options for private companies. As a result, Israel saw a significant decline in public companies, which threatens the stock market’s existence. Israel’s stock market is an important source of employment as well as innovation in the business world. It provides opportunity for individuals to grow their own wealth while participating (to some degree) in the business process.
It’s hard to imagine a world without stock markets, but this very idea is being deliberated across the world. With so many options for private funding, such as private equity and hedge funds, many argue that there is no need for stock markets. Private companies now have the ability to secure the funding they need without having to face the public scrutiny and stringent regulations that public companies face.
Private Companies Rises as Initial Public Offerings Decline
Haim Toledano states that these “same issues are also affecting the United States.” In recent years, there has been a sharp decline in the number of initial public offerings. Meanwhile, private companies are gaining significant market value without having to go through the rigorous process of going public.
Certain voices in Israel are making the argument that the era of the stock market is coming to an end. Israel’s stock market has seen a decline in IPOs, but the question shouldn’t be whether to dismantle stock markets. Instead, the argument raises questions about the future of the public sector. What benefits does a private company gain from going public? What does the public gain from having a thriving stock market? If private companies have other means of financing, why should the public intervene?
The benefits of a functioning stock market go beyond surface level. Yes, they provide financing for companies, but they also give the public the ability to share in a company’s profits and make long-term investments. Furthermore, it ensures that companies are operating with transparency and must be held accountable to investors.
If stock markets were to disappear, companies would have no incentive to report to the public or investors. A lack of transparency could increase the risk of unscrupulous activity, like backdoor deals with no public oversight.
With no accountability and no need for transparency, would unethical business practices take precedence?
Mr. Toledano, known for his keen eye when picking new companies on the stock market, believes the stock market remains an integral cog in the world’s economies.
Stock markets play a crucial role in the economy, and while private companies have other financing options, there can be no doubt that ending the era of the stock market would have ill effects on economies around the world.