The Growing Blessing of Unicorns: The Changing Nature of the Market for Privately Funded Companies

The past 15 years have seen the emergence of large infusions of private capital at levels previously accessible only in public markets. One direct effect of these non‐public fundraisings is the spawning of private entities with market valuations reaching $1 billion, thereby achieving the status of unicorns. As the authors reported in an earlier study, by the end of 2015, there were 142 unicorns with an aggregate value exceeding $500 billion. The conviction of many investors and managers at that time was that these companies could best create value by staying private, often by adopting governance structures focused on creating superior operating performance. It was also widely believed that unicorns would remain outside the public markets longer and succeed in attracting even more private capital, thereby enabling their investors to capture a greater share of the increase in company value. In this study, the authors examine how the characteristics and dynamics of “the blessing” have changed in the past five years. Despite the widespread view that the valuations and private financing trend fueling this market were not sustainable, the authors report that by March 2020, the “net” number of unicorns had grown from 142 to 464, a number that doesn't reflect the transformation of over half of the 2015 sample through acquisition or public offering and their replacement by new unicorns. Further, the cumulative market valuation of unicorns more than doubled from $500 billion to $1.37 trillion, representing growth far greater than that in the public equity markets (some 26% per annum, as compared to 9% for the S&P 500) over the same period—and the blessing has become more diversified, both in terms of industry and geographical location. The authors also consider what happens when unicorns “graduate” to a different organizational form by means of an IPO, private buyout, or business failure. Analyzing the 107 firms that departed the sample between 2015 and 2020, the authors report that the average lifespan of a unicorn from its founding date to its exit date has been 9.5 years, indicating that such firms indeed remain privately owned for a longer time than in the past. Additionally, the study finds that the founders and initial investors in unicorns have fared quite well, cashing out their initial investment at almost six times invested capital, on average. These private investment performance metrics have been significantly higher than the returns to public shareholders in the same firms during the post‐IPO period, signifying that unicorn investors have captured much more of the value created in the company's growth phase than public stockholders.     

The walrus, carpenter and oysters: Liberal reform, hypocrisy and expertocracy in Maori land loss in New Zealand 1885–1911

This paper considers the Liberal Governments’ reformist agenda and resultant hypocrisy surrounding wealth confiscation from Maori in New Zealand from 1885 to 1911. Through an analysis of official records, ledger accounts and other historical documents, it shows how the government compulsorily acquired land from Maori and resold it at considerable profit, thus supplying a means of increasing state revenues. Supplementing these revenues were exorbitant survey fees, government commissions from Native Reserves and local government rates in which accounting expertise made it possible to enclose, price and levy charges. The calculative process enabled parliamentarians to argue that given the poor returns to Maori, their assets should be put into the hands of land-selling councils. Maintaining a figurative distance from the mechanism of exploitation, all the while responsible for its enactment, successive Liberal administrations throughout the period made much of past injustices and expressed considerable sympathy for Maori. Maori were largely dispossessed of their land by the end of this period—a period of relative calm where public appeasement and niceties presented a more benign façade to the disproportionately heavy taxation burden on, and ultimate pillage of Maori.     

The impact of shadow banking on the implementation of Chinese monetary policy

This paper empirically analyses the relationship between the shadow banking system and implementation of monetary policy in China using the VECM methodology. We show that an increase in the size of shadow banking sector increases the independence of bank lending from the policies of the People Bank of China. We also find that Shadow Banking works in an asymmetric fashion in that it amplifies increases in the money supply but weakens the effects of restrictive interest rate-based monetary policy decisions.     

The impact of nominal stock price on ex-dividend price responses

In this paper, we examine whether nominal stock price can help to explain the ex-dividend day anomaly where stock prices drop by less than the dividend amount on the ex-dividend date. We find that stocks with lower nominal prices have ex-dividend day price drops that are more consistent with theoretical predictions based on an efficient market. After controlling for factors that have been previously documented to influence ex-dividend day stock price behavior, price-drop-to-dividend ratios are closer to one for lower priced stocks. To further explore this phenomenon, we examine the change in the price-drop-to-dividend ratio around stock splits. Firms that split their shares have a larger price-drop-to-dividend ratio after the split, and companies that reverse split their shares have a smaller price-drop-to-dividend ratio after the split. Our evidence indicates that ex-dividend day stock price behavior is influenced by the nominal price of a share and that this relation could also influence the decision to split a firm’s shares.     

The SEC and Improving Sustainability Reporting

In this discussion that took place at the SASB 2016 Symposium, the former Chair of the Securities and Exchange Commission explores recent developments in corporate sustainability reporting with three Directors—two past and one current—of the SEC's Division of Corporation Finance (or “CorpFin”). The consensus of the panelists was that investors want companies to provide more and better disclosure of their ESG exposures, particularly climate change, and their plans to manage those exposures. According to the current director of CorpFin, the most common demand expressed in the thousands of “comment letters” elicited by the SEC's recent concept release was for more and better sustainability information. And among the many issues cited by investors in those letters, including economic inequality, corruption, indigenous rights, and community relations, the subject of greatest interest by far was climate change. While none of the panelists claimed to see private‐sector demand for SEC action and a new set of mandatory requirements, all seemed to agree that many companies would welcome the establishment of voluntary guidelines and standards for providing ESG information—and that the guidelines recently developed by the Sustainability Accounting Standards Board are a promising model. For companies in each of 79 different industries, the SASB has identified a specific set of “material” concerns along with metrics or KPIs that can be used to evaluate corporate performance in responding to those concerns. Perhaps the most important advantage of this approach is that, by limiting such reporting to material exposures (and so adhering to a principle that has long informed SEC requirements), the SASB guidelines should significantly increase the relevance and value to investors—while possibly holding down the costs—of the sustainability reports that large companies in the U.S. and abroad have been producing for decades. But, as the former SEC Chair also notes in closing, the adoption of such guidelines by companies should be viewed as just a first step toward improving disclosure. To help companies develop the most useful and cost‐effective disclosure practices, investors themselves will have to become more active in communicating their own demands and preferences for information.     

An expected utility analysis of k-majority rules

Buchanan and Tullok (The calculus of consent: logical foundations of constitutional democracy. University of Michigan Press, Ann Arbor, 1962) argued that the optimal k-majority rule should minimize the sum of external costs and decision costs. Dougherty et al. (Public Choice, 163(1–2):31–52, 2015) formalized their approach using various groups of voters. In this study, we analyze the optimal k-majority rule in terms of expected utility and compare our results to Dougherty et al. (2015), which focuses on costs alone. Specifically, we replace Buchanan and Tullock’s external cost function with an external utility function that accounts for both the benefits and costs of enacting proposals. We find that analyzing k-majority rules in terms of utility, rather than costs, affects the optima. Furthermore, in terms of utility, the optimal k-majority rule can vary depending on the group one expects to be in during a vote. With some interesting exceptions, individuals from groups that favor the proposal often find small k-majority rules optimal. Individuals from groups that oppose the proposal often find large k-majority rules optimal.     

UK consumer attitudes concerning environmental issues impacting the agrifood industry

Consumer concern for the environment has been on the increase in recent years. This concern has created many opportunities, as well as threats, for all businesses but particularly for those involved in the agrifood industry. These concerns can and do change considerably in a short space of time so it is essential that consumer surveys are conducted on a frequent basis to monitor these changes. This paper presents the findings of one such survey based on the findings of a consumer attitude study concerning environmental issues relating to the agrifood industry. The data is subjected to a cluster analysis in order to segment the respondents and make the findings more meaningful. The paper concludes that there are four groups of consumers (the ‘angries’; the ‘not‐quite‐so‐angries’, the ‘anxious‐but‐amiables’ and the ‘Panglossians’) and that while a number of subjects constitute issues for consumers the one that unites most consumers, and which will probably have the greatest impact on the environment, is genetic modification. Consumer resistance to genetic modification is found to be high and it is suggested that as a result farmers will continue to employ traditional farming practices in the future. Copyright © 2000 John Wiley & Sons, Ltd. and ERP Environment.