Question

Williamson (1981) seeks to understand how firms and markets differ in their handling of transactions in regard to three dimensions. He asks first, “what advantages do markets have over firms?” For non asset-specific transactions which statement is untrue? Markets typically suffer from production cost disadvantages relative to firms (hierarchies) when trying to realize scale economies in non-specific transactions Firms are typically less able than are markets to aggregate uncorrelated demands Markets usually enjoy governance cost advantages relative to firms when large number of parties transact for commodities None of the above are untrue (all are true)

Answer 1

The chief advantage that most publicly traded corporations enjoy – and the primary reason why private companies decide to go public – is greater access to financing through capital markets. Public corporations can also protect their owners and managers from many legal liabilities, although some privately owned companies can accomplish this as well. Corporations with stock on listed exchanges can also offer stock options to employees, improve their brand equity and receive a form of complimentary advertising.

Capital Financing

Publicly traded companies can instantly reach millions of potential financiers by selling stock (equity) or bonds (debt) in capital markets. The increase in financing and company valuation at an initial public offering (IPO) can be massive; Netscape almost instantaneously boosted its company value to over $2 billion on the day it went public.

Capital raised in the equity markets carries no obligation of repayment and doesn't carry an interest charge. For this reason, publicly traded companies with relatively high levels of equity are better able to survive disappointing returns or business cycles.

Banks prefer to lend to publicly traded companies. Reasons for this include access to information and perceived regulatory security. This often translates into lower negotiated interest rates on bank debt. Lower interest costs increase profitability.

Reduced Liability

Most forms of business organization carry forms of personal liability protection from creditors and plaintiffs, with the most notable exception being a sole proprietorship. For example, shareholders of a corporation, though part owners, can't be forced to use personal assets to pay back the corporation's creditors.

This isn't necessarily a significant advantage over all other businesses. Many private businesses create limited personal liability for owners, including limited liability companies and privately held corporations.

There are some exceptions to corporate liability protection. In some instances, courts can rule that the corporation doesn't actually exist. The owners of such a corporation lose legal protections on personal liability. Publicly traded corporations on listed stock exchanges have almost zero risk of such rulings.

Employee Benefits

A publicly traded corporation can offer stock or stock options as part of employee benefit packages. This can be a real advantage in attracting and retaining top talent. Examples of this type of incentive structure is commonplace among management positions for successful companies, due to potential for capital gains from stock holdings.

Brand Equity

Information about major stock exchanges, such as the New York Stock Exchange, are published every day in different forms around the entire world. Listed companies see their stock tickers scroll across websites, news programs and phone apps. Publicly listed corporations receive free advertising and name recognition.

Most major IPOs are accompanied by increased attention and market buzz. It's considered a sign of success and prestige to go public, and listed stocks are perceived as being safer because of public and private regulations from exchanges.

Investing in a securities market, also called investing in stocks and bonds, is one of the primary ways to build wealth through capital appreciation -- an increase in the securities’ value over time. Savings accounts earn interest, and the principal is absolutely secure because these accounts are insured by the FDIC, the Federal Deposit Insurance Corp. Even if the bank where you have your deposit fails, your money is protected up to the insurance limit of $250,000.

Higher Rate of Return

The stock market has its ups and downs, but a patient investor who holds stocks as a long-term investment -- five years or more -- historically earns a higher rate of return than someone who puts his money in a savings account. Buying stock shares means having an ownership interest in a company. As the company grows and becomes more profitable, the value of the shares increases. At times, stocks can rise dramatically, allowing investors to earn double-digit returns on their investment portfolios -- much more than savings account holders earn. Over the last 60 years, the average annual rate of return on stocks has been 11 percent -- 7 percent when adjusted for inflation.

Capital Gains and Dividends

Investors in stocks can earn money two ways: capital gains and dividends. Savings account holders just earn interest. Many corporations pay cash dividends, usually quarterly, to shareholders. The big payoff for stock investors is the capital gain, which is the difference between the value of the stock when it is sold and the value when it was purchased.

Flexible Objectives

A century ago, the universe of possible investments was so limited that their prices could be published in the morning newspaper. These days, the investment world is like a giant supermarket, with choices to fit every financial objective. Of course, in this supermarket it’s not easy to spot the potentially rotten eggs. Mutual funds are considered excellent ways for the beginning investor to get started. These are professionally managed funds that select groups of securities. The investor purchases shares of the overall fund, not the individual stocks. If you want a combination of current income and growth, certain funds are designed to accomplish that objective. If you want a riskier portfolio with the potential for faster growth, you can choose from among the “aggressive growth” mutual funds. Savings accounts provide just one major objective: a stress-free way to earn a modest return.

The Fun of Investing

Investing is challenging, can be exciting and is a learning experience. Selecting stocks to invest in doesn’t require an advanced degree in finance, but it does require careful research and keeping up with current economic trends. It’s a great thrill to participate in a bull market -- one in which stocks go up in price -- and watch the value of your investments climb week by week. A savings account may be a safe place to park your money without the worry that comes with stocks, which can decline in value. But it is also boring. No one ever impresses his friends at a party by exclaiming, “The interest rate on my savings account jumped a quarter of a point last month!”

so the two statements which are mentioned on the above are true