Sunday, September 9, 2012
Facebook's Failed IPO and the Era of Insider Capitalism, by Stephen F. Diamond, Santa Clara University - School of Law, was recently posted on SSRN. Here is the abstract:
The initial public offering (IPO) of Facebook is the most important failed IPO in the history of the American capital markets. Explanations for the failure largely focus on the widely publicized problems at Nasdaq, the exchange venue where the offering took place, and the role of the investment banks that helped lead the IPO. This paper argues that the problems were likely caused by a confluence of two other important factors: the pressures of what I define as “fictitious capital” and the internal culture of the company itself created by Mark Zuckerberg, the founder and dominant shareholder of the company, aided and abetted by early investors such as the libertarian Peter Thiel. These factors suggest the emergence of a new period in capitalism that I call “insider capitalism” where key investors ally with founding entrepreneurs to exploit informational advantages to appropriate value. The paper thus suggests that there is a deeper structural and ideological problem extant in modern capitalism.