Going public and being sued? The number of IPOs in the US stock market has been halved, with litigation risks becoming the number one obstacle.

One of the core concerns of potential IPO companies in the United States is the risk of being sued after going public. Research shows that the threat of class action lawsuits is listed as the primary reason for the decline in the number of companies going public, followed closely by the IPO process itself and regulatory burdens. A report titled "The Future of IPOs" released by BI on Wednesday explores a market dynamic that has led to a 50% drop in the number of US public companies since the peak in 1996. Larry Tabb, BI's head of market structure research and the lead author of the report, said, "The IPO process could be sped up further. Many of the required filing documents may evolve into disclosure issues, leading to legal liability." The report is based on interviews with executives in the fields of venture capital, private equity, asset management, and investment banking. Currently, the US IPO market is working to revive and attempt to return to the record issuance levels of 2021. It is expected that SpaceX (which aims to complete the largest IPO in history in June) and other large tech companies planning to go public this year will change this trajectory. The market is hopeful for large IPOs to return to the peak of 2021 The report shows that regardless of size, companies shortly after going public may face the risk of being sued, with some respondents viewing it as an "IPO tax." This risk is often triggered by stock price fluctuations, unrelated to the existence of substantial violations. Some respondents indicated that the existing securities litigation structure may incentivize frivolous lawsuits. The report points out that the trend of companies steering away from public capital markets in recent years is not caused by a single issue. Respondents also mentioned burdens of disclosure, pressure to meet short-term market expectations, and the increasing availability of private capital. The research institution stated, "Stakeholders interviewed indicated that sources of private capital typically have longer-term liabilities. For example, sovereign wealth funds and insurance companies often operate with longer or indefinite investment horizons. This can support financing structures that are difficult to implement in public markets, especially in cases of long-term assets and limited liquidity." Tabb mentioned in an interview that some private equity firms are even starting to avoid investing in projects that rely on "going public" as an exit path due to concerns about the execution capability of IPOs. Certainly, policymakers, including the US Securities and Exchange Commission (SEC), are increasing efforts to address regulatory overreach issues to ensure that public markets remain competitive in the face of competition from "staying private." Tabb said, "With some challenges facing the private credit sector, some large private companies entering the market, and the related work being done by the SEC, we may see this deadlock break or at least begin to loosen." Changes proposed by regulatory authorities this year include: options to change quarterly reporting to semi-annual reporting, reducing the scale of executive compensation disclosure, and reforming proxy advisory and shareholder proposal systems. In addition, state-level corporate law changes are strengthening competition with Delaware in litigation and governance, and more stock exchanges are competing for market share. Another possibility is that the US Senate may pass the bipartisan INVEST Act, aimed at revitalizing public markets, which has already passed the House. "It's not something that happens overnight; some work needs to be done by Congress, so I can't say we'll see results quickly," Tabb said.