The recent withdrawal of WeWork’s planned initial public offering created one positive result, according to Michigan Ross Professor Amiyatosh Purnanandam.
In a new essay for Forbes.com, Purnanandam argues that the failed IPO demonstrates an important lesson: Companies seeking cash while operating at a loss need to consider the rights of their outside shareholders.
“Well-functioning capital markets must have the ability to separate firms that are worthy of raising capital from those that are not. WeWork’s failure bolsters investors’ confidence in the markets’ ability to do so,” he writes. “The eventual withdrawal of the IPO sends a clear message to entrepreneurs and underwriters that they can no longer ignore shareholders’ rights if they want shareholders’ money. This bodes well for the long-run efficiency of the IPO market.”
Amiyatosh Purnandandam is the Michael Stark Professor of Finance and chair of finance at the University of Michigan Ross School of Business.
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