Question

if taking a company public is a good idea, why don’t all companies choose to do so? what are the risks? what are the benefits?

Answer 1

The main reason behind companies going public is to raise money. Not all companies go public because some are not having the market cap that qualify them to raise an IOP. There are a lot of requirements which needs to be filled to qualify for an IPO, which they might not have been currently complying with.

Advantages/benefits of listing/going public :

• It provides liquidity,
• It improves reputation and improved image of the company.
• It provides financing cheaper source of finance for expansion and diversification.
• The share is quoted at the best price, as the shares are traded in a transparent manner and is fixed by the demand and supply between the buyers and sellers.

Risks of going public:

• Listing of securities may enable speculators to either raise or bring the price of the security down.
• listing gives access to the company management to insider information which can be very harmful for the common shareholders.
• Listing provides disclosure of important financial information which might be used by the competitors to gain advantage over them.
• They have to have accountability and scrutiny , public companies are subject to intense scrutiny and they have to comply wit the rules of the market.