Why More Companies Are Choosing to Stay Private
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There’s been a big drop in the number of public companies in the U.S., with numbers plummeting from around 8,000 in 1996 to just 3,804 in 2024. Some people blame stricter financial reporting and audit regulations (like Sarbanes-Oxley and Dodd-Frank), saying the burden is too high for companies to go public. With over 1,200 ‘unicorns’ (private companies valued at $1 billion or more) globally, it's clear that many businesses now see more upside in staying private.
South Africa is seeing a similar trend. A 2021 article by Allan Grey points out that the Johannesburg Stock Exchange (JSE) has shrunk dramatically over the last few decades, from around 776 companies thirty years ago to fewer than 300 today, depending on the source. Much like the U.S., the decline is driven more by mergers, acquisitions, and strategic delistings than by regulatory burdens alone. Small-cap delistings are particularly common, averaging about 14 exits per year. However, unlike the U.S. where private equity dominates, the South African market is more affected by macroeconomic pressures and sector-specific shifts, particularly in mining and finance. Still, the net result is the same, fewer companies choosing to list publicly, and more choosing private growth paths.
In his recent Forbes article and academic research, Columbia Business School professor Shivaram Rajgopal digs into the deeper motivations behind this shift and what it means for accountants.
This research says: It’s not just about dodging red tape. Let’s look at some of the key reasons below.
Why Private Companies Are on the Rise
For many businesses, staying private offers more flexibility, better access to capital, and fewer regulatory headaches. The appeal includes:
Lower reporting burdens: Private companies aren’t required to file detailed disclosures or undergo costly audits under Sarbanes-Oxley.
More control: Founders and investors can operate without the pressures of quarterly earnings reports and shareholder activism.
Easier capital access: The rise of private equity and venture capital means companies can raise substantial funds without ever entering public markets.
The Disadvantages of Staying Private
Despite the perks, Rajgopal notes several challenges:
Lack of liquidity: Investors in private firms may find it harder to exit or cash out.
Valuation uncertainty: Without market pricing, valuing a private firm accurately can be difficult.
Limited transparency: Private companies are not subject to the same disclosure rules, which can impact investor confidence.
The Regulatory Angle
Yes, compliance costs matter. Micro-cap companies in particular may face an 80% increase in audit fees, equating to about $700,000 extra per year, making public markets less appealing. But regulation alone isn’t driving the trend.
What This Means for Accountants
Whether public or private, companies still need rigorous financial oversight. For accountants, this trend signals:
Increased demand for private company audits, reviews and valuations
New advisory roles for capital raising, reporting, and strategic planning
A shift in client focus from going public to managing private equity and investor expectations.
The Bottom Line? Staying private isn’t just a reaction to red tape. It’s often a strategic choice. And accountants who understand both the benefits and pitfalls can deliver more value to their clients.
🔗 Are your clients weighing the public vs private decision? Tag @CIBA and share your insights.
