Question

For what reasons would a corporation decide to list on a national stock exchange, such as the DOW, instead of a regional exchange?

Answer 1

Stock Exchange is a platform where securities are freely traded between investors with the help of members i.e. brokers. It helps in purchasing and selling securities, debt and derivatives. Apart from national wide stock exchanges there are regional exchanges which were set up to help companies operating in those regions to raise money.

But over time the regional stock exchanges lost their value and big companies moved to national stock exchanges. There are many reasons corporations decide to list on a national stock exchange, such as the DOW, instead of a regional exchange. Some of these are -

1) Ease of raising funds for companies-

A majority of the stocks listed on regional stock exchanges had businesses limited to only those regions. When they go national they get they can grow and can raise capital more easily. The investor base is more in national.

2) Ease of investing for customers-

A majority of the stocks listed on regional stock exchanges had businesses limited to only those regions. They were small firms and the investors had very less number of options available to them. When the firms are listed on National stock exchanges, the investor has large number of options for investment. Also, due to higher regulations and transparency the investments will be more secured and safe. A person living in X state can invest in any company registered anywhere in the country. This provides ease of investing and more options for the customers to invest.

3) Better regulations and transparency

Companies listed on national stock exchanges have more regulations and have to abide to more rules and regulations. Nation wide organisations incorporated for regulation the sock exchanges impose strict rules to the companies listed on national stock exchange which increase the transparency.

4) More liquidity

As the investor base is more in national stock exchanges, companies can raise huge funds in national exchanges. Also, the liquidity for the investors is more. They can easily purchase or sell the sales in national exchanges.

5) Low cost of capital

As the investor base is more in national stock exchanges, companies can raise huge funds in national exchanges which reduces the cost of capital for the firms.

6) Lower flotation cost

Flotation cost is the cost of raising the funds in the market. As the investor base is more in national stock exchanges, companies can raise huge funds in national exchanges which reduces the cost of raising funds for the firms.

Hope it helps !