The Reason to Worry When Public Companies Disappear

Public corporations are an odd hybrid institution. They’re not really public in the sense of the government having a stake in them -- they’re privately owned companies that follow government standards for financial reporting. In theory, this transparency makes them suitable for the public to invest in.

Again in theory, this confers at least two benefits on a company. Financial transparency and adherence to strict government standards should raise investors’ confidence, making them more willing to invest, and thus provide businesses with capital. At the same time, exposure to public scrutiny should discipline corporate managers; if they make a bad strategic decision, their company’s stock will fall, while if they succeed, it will rise. Eugene Fama, the Nobel prize-winning financial economist, likened the horde of investors to a swarm of piranhas, just waiting to pounce on any bit of information about a company’s value, and bidding the stock price up or down appropriately.