[quote=harvey]What makes you think that CEO/board shenanigans don’t occur in private companies also?
Investment in private companies has plenty of its own risks.
Take a moment and think about why there are “public” companies in the first place.[/quote]
CEO/board shenanigans do occur at private companies… it’s just considerably more unusual. Most private companies have concentrated ownerships, and these owners tend to be pretty vigilant on matters of corporate governance because they don’t have the luxury of liquidity that public companies provide.
Public companies exist largely because owners want to cash out in part or in whole – or have a liquid holding that they can sell more easily in the future. That’s the *real* reason *most* public companies exist (that is, go public via IPO). The *purported* reason – contradicted by the empirical evidence – is that these companies need access to the public markets for less expensive capital. This latter reason is certainly valid in certain cases – no doubt about it – but it’s not the *primary* reason that most companies are public. Take the average public company and see how many times over a five year period they need to access the public markets for long-term debt or equity that they would have paid considerably more for if they were private. In percentage terms the number is not that large. And in this day and age, many small companies, if they are successful and have proper governance, can access the public debt markets (and even equity markets in many cases) on the same terms as their public brethren.
So, public companies exist *primarily* because owners want to cash out (in the early stages) and managers want to loot (after the company’s mature)… and there are plenty of new owners who will enable them in this process. Other more “legitimate” reasons exist as well (as discussed above)… but these tend to be secondary.
