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Economist Says: Private Ownership is Better

Another voice has weighed in on the advantages of private ownership of companies. Distinguished economist Dr. Donald Ratajczak, director of Georgia State University’s Economic Forecasting Center recently wrote in his regular column in the Atlanta Journal and Constitution (Sept. 22, 1996), “the case can be made that privately owned companies use resources better than publicly owned ones.” The advantages according to Ratajczak:

 

  • “Direct ownership involvement in running a private company . . tends to increase the long-term value of a company.”
  • “Sometimes . . . public companies care about bigness. . . . Thus, ill-conceived growth strategies or acquisitions could cloud the judgment of the public company manager.”
  • “Reports and shareholder meetings cost money and time but concerns about stock values sometimes lead to financial decisions on leveraging and stock buy backs that would not be made by a private owner.”

Two important values of a privately owned company are long-term objectives that can more clearly drive company strategy and absence of efforts to hold up stock values through financial activity.

Down sides of being private: Financing is more difficult, and therefore it may be harder to take advantage of opportunities; undiversified owners face more risk; succession planning is more critical to company continuity; and determining actual company value becomes more dificult.

 

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