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i) Advantages of being listed at the stock exchange
1) Risk diversification i.e. by selling some of their shares to the public the company can be able
to diversify its holding hence reducing riskness of its portfolio.
2) A listed company can be able to obtain the under writing facilities because it can negotiate
with the possible underwriters to purchase its securities which are not subscribed for by the
general public.
3) A listed company will be perceived by the general public to be credit worth and hence the
creditors will be willing to grant credit to the company at favorable terms.
4) A listed company can obtain feedback information from the stock exchange concerning its
performance over time.
5) A listed company is able to compare its performance with other similar companies which are
also listed in the stock exchange (cross-sectional analysis).
6) A listed company is likely to obtain privileges from the Government i.e tax allowances and
protection from the competitors.
7) The determination of the value of the firm i.e. the value of the shares of the company is
determined by the forces of the market and hence there is no uncertainty.
8) Financial management discipline i.e. once the company goes public its finances and its
managers will be open for scrutiny by the general public.
ii) Factors that may hinder companies from being listed
1) The company will loose confidential information to the public more so to its competitors
2) There are strict rules, regulation and requirements for the company to be listed.
3) The existing shareholders may loose control as a result of the incoming shareholders who
may come in with new ideas which may disrupt the running of the company.
4) A company whose profit records are not good may be deregistered from the stock exchange
and their will have a negative impact on the company.
5) In case the company profits decrease it will reflect to the general public resulting to
reduction in share price and subsequent decrease in goodwill hence making it difficult for
the company to raise funds from the general public.
6) Listing involves several formalities i.e. getting permission from the capital market and the
stock exchange council.
Kavungya answered the question on March 30, 2022 at 09:34
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