Ghana Stock Exchange,Merits and Demerits of Listing on It
The Advantages & Disadvantages of Listingon the Ghana Stock Exchange-AnthonyAdangabe (HND, BSC)DEFINITION: Stock Exchange is an organized market for buying and selling of financialinstrument known as securities which includes stocks, bonds, options and futures. In summary, itis an organized market where securities are bought and sold.HISTORICAL BACKGROUNDThe idea of establishing a Stock Exchange in Ghana lay on the drawing board for almost twodecades prior to its implementation. In February 1989, the issue of establishing a stock exchangemoved a higher gear when a 10 - member National Committee, under the Chairmanship of Dr.G.K. Agama, then Governor of the Bank of Ghana, was set up by the Government. Othermembers of the Committee were: Dr. Kobina Erbynn - Former Chief Executive, GIPC Mr. N. K. Kudjawu - Kudjawu & Co, Accra Nana Wereko Ampem II (Late) - Former Chairman, Barclays Bank of Ghana Ltd Mr. Afare Donkor - Former Managing Director, CAL Bank Mrs. S.Beata-Ansah - Ex Managing Director, HFC Bank Ltd Mr. E. J. A. Aryee (Late) - Former Managing Director, NTHC Ltd Dr. J. K. Richardson - Former Managing Director, BAT Ghana Mr. S. Y. Osafo-Maafo - Former Managing Director, National Investment Bank Mr. Yeboa Amoa - Who became the Exchanges first Managing DirectorThe work of the committee was to consolidate all previous work connected to the StockExchange project and to fashion out modalities towards the actual establishment of theExchange. As a result of the work of the committee, the Stock Exchange was established in July1989 as a private company limited by guarantee under the Companies Code of 1963. It wasgiven recognition as an authorized Stock Exchange under the Stock Exchange Act of 1971 (Act384) in October 1990. The Council of the Exchange was inaugurated on November 12, 1990 andtrading commenced on its floor the same day. The Exchange, changed its status to a publiccompany limited by guarantee in April 1994.Going public is not an easy task. In deciding whether to seek a listing, a company shouldconsider the alternative financing needs available and the benefits versus the drawbacks oflistings.BenefitsThere are many advantages that accrue to companies that attain a public listing of their shares.Some of the key considerations and benefits are: Easy access to long term and new capital: on going public, it enables the company to raise a long term capital by issuing securities to the public. Going public provides access
to various individuals who in aggregate have a significant amount of funds to invest. The ability to raise funds from investing public through issue of securities is perhaps the most valuable of the benefits that accrue to the public companies. Rising of such capital allows future expansion in growth. Creating a market for the companys shares: public companies offer the investing public including institutional investors and pension funds, an attractive avenue for investment by virtue of liquidity of issued securities. Enhancing the status and financial standing of the company: an immediate benefit enjoyed by a newly listed public company is the considerable improvement in over-all financial position. The injection of substantial equity funds for example greatly improves the company’s balance sheet. With such capital injection, the company will be able to improve its financial position. Increasing public awareness and public interest in the company and its products: going public will raise the level of investment community awareness of the company and its products. This can result for example in a greater ability to attract high caliber of employees and increase general business opportunities. The public companies also benefits from access to useful information brought to them by advisers, financial analysts, stock brokers and shareholders. Providing the company with an opportunity to implement share option schemes for their employees: the ability of companies to offer share options and employees share ownership schemes is a key advantage of the public companies. Accessing to additional fund raising in the future by means of new issues of shares or other securities: Apart from its initial capital that it raises from the stock exchange market, it has another opportunity to issue more securities for future investment. Freedom to diversify investment: by going public, existing shareholders are placed in the position to diversify their investment Transferability of shares: a private company restricts the right to transfer its shares. Shares in the private companies can generally only be sold to other existing shareholders. Shares in the public companies on the other hand are freely transferable. Realization of investment: a key benefit that shareholders in private companies derive from going public is the ability to establish a market value of shares thereby enhancing the ability to trade in the shares.
DrawbacksWhile there are benefits to going public, it also means additional obligations and reportingrequirements on the companies and its directors: Shareholder interests - people that invest in your business will become shareholders. These shareholders then have an interest in how your business is run, and you will have to consider their interests when running your business. Shareholder interests may be different to your own objectives and in some instances this can lead to conflict. High set-up costs - listing costs can be considerable when joining the Main Market and you will have to pay ongoing costs – e.g. higher professional fees. There are further costs you need to consider which include financial reporting documents, audit fees, investor relation departments and accounting oversight committees. Reduced control - floating your business on the Main Market can expose you to losing some control over the management of your business. As there are stakeholder interests to consider, you may not have full control over certain business directions or decisions. There is also the potential risk of your business being taken over - if an interested investor can acquire enough shares in your business. Market fluctuations - these can occur through many factors (e.g. social, political or economic). These fluctuations can make your business vulnerable, as invested capital can drop. Short term only focus - the pressure from shareholders, and other competition in the Main Market, could cause you to focus on short term goals to improve share prices. This can generate rapid additional revenue, but could also mean you fail to focus on your long term business growth. Your business may become vulnerable to market fluctuations beyond your control and the added pressure of the market could cause you to focus more on short-term results than long-term growth. Additional compliance - you will have to comply with numerous additional regulatory requirements and meet accepted standards of corporate governance – e.g. added disclosure for investors.
In conclusion, the benefits of listing on the Ghana Stock Exchange outweigh the drawbacks. It is therefore advisable for more companies to be listed on the Ghana Stock Exchange.ReferencesSettor Amediku, (Financial Management Strategy)Len Mcdowall , (Publicly Listing A Company)