Shareholders should discount companies without proper financial audits. The trade off in theory is higher risk for higher rewards without that overhead. In practice that’s not what happens.
It’s really several short and long term feedback loops. If the market is efficient then excessive due diligence is a waste and a low overhead ‘dumb’ investment strategy is ideal. However, should everyone take that stance company management has huge incentive to cheat and fleece that dumb money.
If dumb money is being fleeced that pushes for regulations while ‘smart’ money has higher profit. But, should those regulations work they get torn down as excessive wastes.
There should never be a company that runs for an extended period of time without proper financial audits. It is THE job of regulators to ensure appropriate audits. NMC Health IPO'd on 2012 and the fraud was found in 2019. Muddy Waters a private research firm was able to discover the fraud which puts into question the regulators here. One can't just simply push responsibility of audits on the "reward - risk" line to ordinary folk.
It’s really several short and long term feedback loops. If the market is efficient then excessive due diligence is a waste and a low overhead ‘dumb’ investment strategy is ideal. However, should everyone take that stance company management has huge incentive to cheat and fleece that dumb money.
If dumb money is being fleeced that pushes for regulations while ‘smart’ money has higher profit. But, should those regulations work they get torn down as excessive wastes.