Corporate Finance
Question 1(a)To be listed on a recognized stock exchange, a company must go through an initial public offering (IPO) ，which is the first sale of stock by the company to the public. Private listed companies or small firms that are planning to expand the growth of their company often use an IPO as a way to generate and raise the capital needed for their company expansion. Although further expansion is beneficial to the company and its shareholders, there are both advantages and disadvantages that will arise when a company is listed on a stock exchange.There are many advantages for a company to be listed on a stock exchange. First of all, the financial benefit in the nature of raising capital from the public is the most attractive advantage. The capital raised can be used to fund the expansion and development of the company, fund capital expenditure or even used to pay off existing debt. Another advantage is market exposure; having a company listed on a stock exchange could attract the attention of mutual and hedge funds, market makers and institutional traders. This can increase the public awareness and popularity of the company, therefore making their products known to a new group of potential customers. Enhancing the brand name and goodwill is also an advantage of listing a company on a stock exchange. This can also increase the credibility of the company with the public, having the company indirectly endorsed through having their stock traded on the exchange.
Listing in stock market brings in liquidity and ready marketability of securities on a continuous basis adding prestige and importance to listed companies. An initial listing increases a companys ability to raise further capital through various routes like preferential issue, rights issue and in the process attract a wide and varied body of institutional and professional investors. Listing is Supervision and Control of Trading in Securities. All transactions in securities are monitored by the regulatory mechanisms of the stock exchange, preventing unfair trade practices. It improves the confidence of small investors and protects them. The listing agreement signed with the exchange provides for timely disclosure of information relating to dividend, bonus and right issues, book closure, facilities for transfer, company related information by the company. Thus providing more transparency and building investor confidence. Collateral Value of Securities due to acceptable to lenders as collateral for credit facilities. A listed company can also borrow from financial institutions easily as it is rated favorably by lenders of capital. Since the violation of the listing agreement entails the de-listing/suspension of securities from the rings of the exchange, the listed companies are expected to follow fair practices to the advantage of investors and public. Its considered Subdivision and Consolidation of Holdings Stock exchange when bye-laws provide for explicit rules for sub division and consolidation of securities as desired by the investors. Thus listing helps to provide flexibility to investors in the subdivision and consolidation of their holdings with speed and earnestness.