Pros and Cons of Stock Exchange Listing
January 5, 2022 (Investorideas.com Newswire) Taking a company public is a significant decision, which goes hand in hand with a number of tangible benefits. Listing on the exchange means that the company's stocks can be traded, provided that it fulfills certain requirements and abide by the rules of the exchange it is included in.
It makes sense that the lion's share of the companies tend to eye major exchanges due to the fact that when they are included and traded on these exchanges, they will be offered significantly higher visibility and liquidity for their stocks. When being listed on a stock exchange, companies indeed create a positive reputation, but there are several drawbacks to think about as well.
Requirements Companies Need to Meet
It should be noted that the requirements companies need to satisfy in order to be added to an exchange vary significantly. According to bestbrokers.com companies can qualify for an exchange if they meet certain listing requirements that have to do with a minimum number of shareholders, minimum share price, and minimum stakeholder's equity, to name a few.
Thus, for example, companies can only get listed on the Nasdaq Exchange, provided that they have 1.25 million publicly traded shares, not counting the shares of the beneficial owners, officers, and directors. This is not the case with the NYSE, where companies can be added if they have more than 1.1 million publicly traded shares. As for the minimum security listing price, with both exchanges, its value runs at $4.
Along with these, the listing fees and the yearly listing charges should also be given due attention. These vary between the different exchanges, and what makes the value of the fees build up is the increase in the traded shares of the company.
Pros of Stock Exchange Listing
It goes without saying that the increased capital of the company is the most appreciable advantage of going public. Besides, the chances of attracting high-caliber board members will also improve when being listed.
Another great benefit of going public is that the company is much more likely to make an impression on a broader range of customers. The first sale of stocks is referred to as IPO, and lots of companies resort to it when they are looking to gather momentum and generate the capital they need to expand their operations. During the initial public offering or IPO, the public awareness of the companies is normally heavy on the rise because the products or services they offer are introduced to a broader range of customers.
When added to an exchange, the company's standing in the market and customer confidence will also scale up, which is an advantage that should not be overlooked, especially when it comes to companies that are looking to expand their footprint.
Cons of Stock Exchange Listing
One of the biggest drawbacks of getting listed on an exchange, especially for smaller companies, is that this process might take a lot of time and is rather expensive. What makes many companies think twice before they go public is the loss of privacy. Needless to say, privacy ranks among the major assets while conducting business, and the fact that they need to lay bare some of their inner workings adds up to the insecurity of whether to go public.
The fact that companies need to disclose their financial results is another reason why they feel ill at ease at getting listed as this information can be reversed-engineered. In other words, some companies are unwilling to go public because they might lose their competitive edge.
When they go public, companies will also face performance pressure because they are required to report their financial results once in several months. The declining performance of the company might be caused by strategies it has implemented, but even if this is the case, this is rarely met with approval.
The costs of compliance are a major setback companies should examine with a fine-tooth comb. Once added to an exchange, the company's expenses will start building up because of the regulations it needs to abide by.
Lastly, we should note the undervaluation of the risk going public goes together with. As you might know, shares can lack liquidity, which can hinder fundraising and acquisition. The lack of demand, on the other hand, brings the share prices down. This is to say that the shares' prices of companies that are listed on an exchange are not only affected by their own performance but by the state of the market and the economy as well.
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