MIT Sloan Management Review on IPO Disclosures Are Ripe for Reform

Rules meant to protect investors have turned out to be no match for bankers pitching today’s businesses to the public markets.

In theory, disclosures required of would-be public companies should provide investors with the critical information needed to determine whether they want to buy in, and at what price. Less obviously but equally important, disclosures should bolster good management practices by establishing sound performance metrics. However, existing disclosure regulations fail on both counts. They are outdated, and it is time for them to change.

Current rules were designed for a different era, when the companies going public were more established and had proven business models. Today’s companies, in contrast, often have untested business models. What companies disclose about their customers is completely voluntary, so executives can — and do — select data that paints their companies in the best possible light. Their disclosures are bloated, uninformative, and often misleading, and investors lack the data they need to make informed decisions or to hold managers and board members accountable.

About the Author

Aswath Damodaran is the Kerschner Family Chair in Finance Education and a professor of finance at the Stern School of Business at New York University. Daniel M. McCarthy is an assistant professor of marketing at Goizueta Business School at Emory University. Maxime C. Cohen is the Scale AI Chair in Data Science for Retail, a professor of retail and operations management, and codirector of the Retail Innovation Lab at the Desautels Faculty of Management at McGill University.

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