So, why should a firm get listed on Dhaka Stock Exchange (DSE) after suffering so much hassle? A need for low-cost capital should be the main motive for a company to get listed on DSE. The stock market listing is not only one of several sources of capital leveraging, but also happens to be one of the widest and most accessible forms of investment for both investors and businesses. It is largely in effect, a free market for buyers and sellers to meet, assess and trade capital for ownership and vice versa. A registration on the exchange allows a company to raise capital and use it to sponsor investment and expansion. The primary gain of raising capital from the market is that it avoids a number of the intermediation expenses apparent in the other forms of capital raising. As a result, the market endows companies with capital at a cheaper cost. For example, for a long-term industrial loan, a firm has to pay more than 15 per cent as interest, where a 10 per cent dividend will be considered a modest return in the stock market, and thus the firm will be able to save 5 per cent on the cost of the capital.
Even after a company is listed, it can boost up capital from the market, through the issue of fresh securities such as Rights issues or through the issue of a new nature of securities. Through listing on Dhaka Stock Exchange (DSE) a company is gaining market exposure to a broader membership of the financial community. And, the superior profile, tied with larger lucidity, could add to the company's capacity to have access to traditional sources of capital in reduced price. Hence, as well a company listed in the stock exchange can access to all sort of capital with minimal cost compared to a private company not listed on the stock exchange.
Furthermore, being listed on the DSE means that a business has met qualification standards set by the exchange. This can add credibility to a business, for instance, customer or client perception of value in a company and its products. So, getting listed on the DSE can press forward brand awareness of company products and can increase a company's corporate standing. Also, in addition to the credibility resulting from the indirect endorsement from the listing, the stock exchange puts forward companies a right of entry to a wide-ranging and mounting investor base, which contains both entity investors and plentiful domestic and foreign institutional investors. This enables the company to embark on expansion of the companies activities and grow in the future in domestic and foreign market.
Listing on DSE facilitates companies to ascertain a price for their shares since it can be traded in the stock exchange and has a performance signal as opposed to a private company not listed in the exchange. If, in general, a company perform well in its business arena, its stock price will increase and vice versa. For instance, though Dutch Bangla Bank's net asset value per share is tk.1154, a market price of its share is Tk. 4025! In case of square Pharmaceuticals Ltd., market price for each share is Tk. 2855 where net asset value per share is Tk. 1280. Because of weak form efficiency of DSE (many academicians might not agree!), firms in Dhaka Stock exchange get over-valued even though they perform poorly! Immediate cash-out is not allowed in Dhaka Stock Exchange (DSE) because of lock-in rule, i.e., restrictions on selling entrepreneur's existing shares for 3 years. So, after lock-in period, entrepreneurs of the firm can take their money out of the firm and invest in another opportunity, if they want to. In addition, you can motivate employees offering extra incentives by granting share options since owner feel much more responsibility than an employee. Typically publicly traded companies enjoy substantially higher valuations than private companies, at least on DSE! Having your firm traded on the DSE gives you greater potential for acquiring other businesses, because you can offer shares as well as cash. So, your firm's shares will also work as a form of currency to acquire other business.
If you still did not get enough reason to get listed on the DSE, here is another one: The income tax rate differential between listed and non-listed companies is 10 percent. According to the budget statement 2007-08, publicly trading companies are paying 27.5 per cent tax whereas non-public companies are in 37.5 per cent tax bracket.
It is obvious from the above discussion stock exchange listing of a company has many durable benefits to the company in terms of its potential to grow and expand than a private limited company. Listing a firm on a exchange is a great idea for a business seeking improved market awareness, greater potential for capital investment, enhancements to brand equity and negotiating influence etc. However, listing on an exchange should probably be in line with or in accordance with business strategy, otherwise the listing may be premature or unnecessary.
The article was published on the daily Independent (Editorial, page 6) in Bangladesh on January 2, 2009.
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