To heal America: fix the IPO market

IPOs are once again making news. Notable performers thus far this year include pediatric nutrition company Mead Johnson and the foreign language instructional company Rosetta...

IPOs are once again making news. Notable performers thus far this year include pediatric nutrition company Mead Johnson and the foreign language instructional company Rosetta Stone. However, the pace of offerings remains slow and is the lowest since the 1970s, a period characterized by high interest rates and high inflation. Today’s lack of IPOs is due in large part to the financial crisis, the economy and regulatory burdens; however, it has been anticipated that 2010 will see an upswing in public offerings as companies pay down the debt they have incurred to expand given the absence of an equity market.

Why should it matter? Surely there are plenty of stocks in which to invest. However, it does matter. IPOs are an important source of growth capital for young companies. Properly funded, those companies hire people, invest in machinery and technology and, to meet the demand, their suppliers in turn hire more people.

And, by the way, companies undertaking IPOs hire PR firms to help with their marketing activities and IR firms to burnish their images with the investment community. So, as you can see, a robust IPO market benefits many companies and people.

In addition to wealth and job creation, some of the greatest inventions and advances in science and technology have been fostered by the capital markets; I’d like to believe that somewhere, somebody might be working on a cure for cancer or tinkering with some game-changing technology in his garage that, if properly funded, would improve the human condition dramatically.

I have some recommendations for the Obama Administration: Reduce capital gains taxes (this will encourage risk and investment); Modify Sarbanes-Oxley (a certain degree of regulation is necessary; however, “Sarbox” has put an unnecessary financial burden on young companies and has caused some companies to go public in less stringent markets); and, finally, 3) Reduce corporate taxes (the US corporate tax rate is among the highest of the developed nations which restricts investment). Worth a shot? I think so.

Ken Makovsky, CEO, Makovsky & Company

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