July 21, 2010
BIRMINGHAM, Ala. - The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by U.S. President Barack Obama today, July 21, could encourage successful, privately held small businesses to offer public stock and reinvest capital that may kick-start economic growth, says an expert in business law from the University of Alabama at Birmingham School of Business.
Stephen Yoder, J.D., an assistant professor in the Department of Marketing, Industrial Distribution and Economics, says a provision in the finance-reform legislation exempts public companies with a total market capitalization less than $75 million from an independent audit attesting to the adequacy of the companies' internal controls for financial reporting required by the Sarbanes-Oxley Act of 2002.
"For public companies that are under this $75 million total market-capitalization threshold, an independent verification audit can be cost-prohibitive," Yoder says. "As a result of this and other public company compliance requirements, privately held companies have chosen to maintain that status rather than take the steps to go public and bear the compliance costs of Sarbanes-Oxley."
Yoder points to statistics that show just eight U.S. companies made initial public offerings (IPOs) in 2009, down from nearly 270 in 1999. He says lobbying trends on Capitol Hill since the adoption of Sarbanes-Oxley indicate that interest groups representing all sectors of the economy have fought to secure the audit-attestation exemption for smaller companies.
"Roughly half of the 10,000 companies operating as publicly traded businesses fall below $75 million in total market capitalization," Yoder says. "There also are many thousands of privately held companies that fall into this category and that cut across all industry sectors; those now may have the incentive to pursue an IPO due to the independent attestation exemption.
"When undertaken by companies with some clear path to profitability - that truly are ready to be brought to market - IPOs can be powerful triggers for economic development," Yoder says.
Publicly held companies tend to be better capitalized with more resources available for research and development, he says.
"IPOs often bring with them capital that companies can reinvest in development and new innovations," Yoder says. "A new generation of innovations will help boost productivity, rejuvenate consumerism and lift our economy into a period of growth."
Yoder says IPOs also can encourage job growth because they generate increased demand for professional services related to the process of public stock offerings. Additionally, Yoder believes IPOs reflect well on local communities and can positively affect their economies because public companies are widely considered to be symbols of economic stability.
Read Yoder's complete commentary on the financial reform bill and possible IPO impacts here.
About the UAB School of Business
Known for its innovative and interdisciplinary approach to education at both the graduate and undergraduate levels, the University of Alabama at Birmingham (UAB) is an internationally renowned research university and academic medical center. Capitalizing on the campus' location in the heart of Alabama's largest city and business center, the UAB School of Business offers unparalleled student access to internships as well as part- and full-time employment opportunities with the state's most significant companies.