Advantages and Disadvantages of Public Listed Finance Essay

Generally, the capital of a public listed company is raised from the public. Unlike private limited company, public listed companies have the rights to issue shares on the stock exchange. They can issue shares easily in the share market. In addition, it often requires less time and expenses to issue shares. Therefore, a public listed company can raise large capital in a short period of time without having to spend much. The capital raised can be used to finance business activities for growth, expansion or pay off existing debts. It can also be used to fund research and development, buying assets and acquisitions. Thus, the value of the company will also increase with the growth of the public listed company.

ii) Institutional Investment

In most of the time, the investment bankers and funds seldom invest in private limited companies. However, they most probably will invest in your company when it is a public listed company. It will eventually increase the company's capital funding alternatives and ability. This is because the investors will gain liquidity and also the fact that public listed companies are more transparent due to the financial report announced publicly. The banks will have more confident towards public companies and less hesitation to lend money to them. As well, public listed companies often receive more favorable lending terms when borrowing from financial institutions.

iii) Increase Visibility

According to Chris Joseph (2009), being a public listed company means increased visibility and also exposure. The company will gain more awareness from the public through media coverage and publicly filed documents. This can improve the company's profile and eventually increase the value of the company in terms of shares. The increased visibility usually will receive many attractions from the potential customers and investors. This is not something that private company can easily do. Besides, it gives the public listed company a greater level of prestige. Prestige serves as a free source of marketing and helps promote the company as the company gains publicity.

iv) Ability to Utilize Stock to Make Acquisitions

The stock of a public listed company is as valuable as cash when acquiring other companies or assets. As a public listed company, it creates a type of currency in the form of its stock and the company can use it to make acquisitions. The market's valuation is used by public company when exchanging stock in an acquisition. In another words, public listed company have the ability to utilize stock to make acquisitions. Usually, it is less expensive and easier compared to private companies.

v) Greater Employee Attraction and Retention

For a public listed company, there will be greater employee attraction. Public listed company mostly does not have difficulty recruiting qualified workers compared to private company (Chris Joseph, n.d.). This is because public listed companies might be more attractive to potential employees since they can pay higher salaries due to the additional capital. These companies also offer enhanced benefits and incentives to motivate employees and improve retention. Besides, the employees also have higher chance to be promoted. Therefore, it creates great employee attraction and retention. Hence, it also increases the company's performance and generates higher profits.

Disadvantages

i) Profit-sharing

Since public listed companies can issue shares, then they have to pay dividends. This means that public listed companies have to share their profits with others, the shareholders. The higher the number of shareholders, the more people the company has to share profits with. Thus, the earnings after paying dividends will be lower.

ii) Loss of Overall Control

According to Girish Ramachandran (2009), loss of overall control is one of the main disadvantages of being a public listed company. This is because the company has to share ownership with others such as the investors and also the shareholders. As the owners of the company, they have the rights to voice out their opinions and vote for matters that can affect the company's operations. The existing management may have loss of overall control of the company especially when the company is controlled by a group of investors.

iii) Loss of Privacy

Girish Ramachandran (2009) states that a public listed company will suffer loss of privacy. This is because as a public company, it will attract a lot of media interest as well as has to publish full disclosure about its operations and plans. Additionally, the law also requires the company to publish sensitive information, mostly annually, to prevent insider trading and also to protect the investors. There will be a loss of privacy because the company's financial report that consist of the sales, gross profit, net income, assets and liabilities will be publicly announced. This is a disadvantage as the other competitors can know about the financial position of the company.

iv) High Reporting Requirements

As a public listed company, there are additional obligations and reporting requirements because they have to fulfill a lot of regulatory requirements and meet accepted standards of corporate governance. Based on Investopedia (2009), public listed companies are regulated by the Securities Exchange Act of 1934 in regard to periodic financial reporting. Comprehensive audited financial statements must be prepared by all the public listed companies and also publish annual reports. Consequently, the company will have to incur high expenses to meet the reporting requirements. In addition, this disclosure provides information to competitors which are a drawback for the public listed companies.

v) Pressures to Increase Earnings

Although being a public listed company can issue shares, however this also means that there is an increase in accountability to the public shareholders. The shareholders are critical on the performance of the company and constantly look for rising profits. Therefore, public listed companies have to face added pressure of the market to increase earnings. The interest of the shareholders will have to be considered first although it may differ from the company's objectives. Eventually, this may cause them to focus more on short-term results rather than long-term growth (Investopedia, 2009). Hence, to boost earnings, the management even may agree to do somewhat questionable practices.

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