Reasons why some companies list and
others are reluctant to list
*A Stock Exchange is essentially a marketplace
where people buy and sell financial
instruments such as shares and bonds.
*It is a regulated marketplace
1. Enlarging and diversifying equity base
2. Enabling cheaper access to capital
3. Price discovery
4. Attracting and retaining better management and
employees through liquid equity participation
6. Creating multiple financing opportunities: equity,
convertible debt, cheaper bank loans, etc.
One of the reasons for listing is the need for
fresh, relatively low-cost capital. Thus a listed
company may find it easier to obtain funding
from more traditional sources due to its superior
profile. This type of funding could even be
obtained at a cheaper cost because of the
company's higher profile as a listed company
This is an advantage for both the investors and the listed
companies as their securities will have an acceptable
“public” price which can be used in the valuation. Investors
can value the shares or debentures that they hold which will
help them to know the market value of their investment
while the listed company will know its worth. If a “public”
price did not exist, valuations can still be done but these will
be quite subjective as information will be from sources that
are not available to everyone.
All this information is publicly available via the exchanges’ or other
websites and publications including the media. This will improve the
transparency of a company as the public will know its inner workings.
This transparency factor could help when the company is looking for
new investors or partnerships. It could also improve the public image
of the company and add value to its CSR (Corporate Social
A listed company can have a professional
management team, particularly as its public image
can make recruitment easier, which will enable its
founders or owners to concentrate on other interests
or investments and leave the daily running of the
company in the hands of professionals
Reasons why some
companies are reluctant to
1. Significant legal, accounting and marketing costs, many
of which are on-going
2. Requirement to disclose financial and business
3. Meaningful time, effort and attention required of senior
4. Risk that required funding will not be raised
5. Your business may become vulnerable to market
fluctuations, which are outside your control.
6. Loss of control and stronger agency problems due to new
Other concerns which are often mentioned by companies
thinking of coming to the market are the actual costs of
listing and on-going compliance. Listing costs mainly
I. sponsor and professional fees;
II. advertising and marketing expenses in connection with an
offer for sale;
III. initial fees payable to the authority; and
IV. Annual fees payable to the exchange.
Public dissemination of information which may be useful
to competitors, suppliers and customers.
More importantly, especially for smaller companies, is
the cost of complying with regulatory requirements can
be very high. Some of the additional costs include the
generation of financial reporting documents, audit fees,
investor relation departments and accounting oversight
The actions of the company's management
also become increasingly scrutinized as
investors constantly look for rising profits.
This may lead management to perform
somewhat questionable practices in order
to boost earnings.
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Midlands State University
Fundamentals of Accounting 2A
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