Benefits of Stock Exchange Listing

Listed companies get more exposure as compared to unlisted. Moreover, the shares of a listed company are freely tradable, and investors have the choice to sell and purchase them at their discretion.

Likewise, companies listed on the stock exchange have got a plethora of advantages. Generally, there are two types of companies- listed and unlisted. From listing we mean the company listed on the stock exchange.

Both the listed and unlisted companies have their own pros and cons and differ from each other on several grounds.

However, both of them are formed with the common objective of profit maximization. Hence, in this piece of article, we have put some light on how listing on the stock exchange will help you take your business to the next level.

What Is a Stock Exchange?

Stock exchanges are secondary markets where existing shareholders can transact with potential buyers. It is important to understand that the corporations listed on stock markets do not buy and sell their own shares on a regular basis. Companies may engage in stock buybacks or issue new shares but these are not day-to-day operations and often occur outside of the framework of exchange.

So when you buy a share of stock on the stock market, you are not buying it from the company, you are buying it from some other existing shareholder. Likewise, when you sell your shares, you do not sell them back to the company—rather you sell them to some other investor.

Benefits of Stock Exchange

The stock exchange has benefitted difference stakeholders in the capital market; it has greatly influenced every country’s section socially, politically and economically. Some of the significant benefits of the stock exchange are as follows;

BENEFITS FOR COMPANY AND ITS MANAGEMENT

Access to capital:

1. The prime objective of the stock exchange its to raise money for the listed corporation in the market; the stock exchange facilitates an easy rise in affordable capital to run business
2. Stock exchange’s easy marketability and liquidity ensure a quick and steady supply of capital to the business through provisioning the buying and selling of stocks and securities
3. This forum also helps the companies to generate additional capital funds without any collateral.
4. The stock exchange also facilitates better negotiation in issuing stocks and securities by providing fair pricing of the published stocks.

High profiling and enhanced visibility

1. Stock exchange benefits the stock listed company to gain higher status and reputation in the business marketplace by enjoying the confidence of the investing public
2. It brings the company under the limelight and enhances its visibility in the public sphere, which helps fund capital and provides more significant support in increasing the market demand and supply.
3. Stock exchange creates a continuous display of the listed company’s name and profiles through marketing its stocks and securities on the stock exchange platform.

More control over the management

1. A stock exchange facilitates the company to have more control over its management; by generating capital form the stock exchange, the company is protected from external control of its managerial affairs.
2. Unnecessary interference of the financial institutions such as venture capitals, banks, and others who lend collateral loans are entirely avoided.

Savings in cost

1. High collateral value for bank loans and other capital fundings are wholly avoided by listing stocks in the stock exchange. Its imposition of huge costs is saved through public issuing of capitals.
2. The stock exchange allows companies to raise funds through the capital market instruments at a low cost compared to other loans.

Economic Benefits

Enhance market liquidity

Liquidity refers to the degree to which an asset can be quickly bought or sold in the market at a price reflecting its intrinsic value. Stock exchange market’s performance is measured with market liquidity, analyzing how well the country’s stock market allows stocks and securities to be bought and sold at stable, transparent prices. One of the significant advantages of the stock exchange to the economy is that the stocks traded are liquid circulated into two market -issuers who indulge in continuous buying and selling, which is primary market and the investors to exchange stocks and investments by buying and selling the securities at any time, which is the secondary market. 

Well-regulated market

1. Stock exchange assures securities’ genuineness as the listing is made after a thorough analysis of a company’s capital structure, the management pattern, and business prospect.
2. Spread of stock exchanges operations geographically all over India all are regulated under one platform
3. Stock exchange abide by all government made laws, rules and regulations
4. It imposes fine, penalty and inquiry into any violations or fraudulent activities when orchestrated within the stock exchange market.

Online trading- spreading geographically

1. Accessing a large pool of capital market investors through the computerized network is made possible by the recent stock exchange developments. Through a nationwide network for servicing of investors, companies listed on the stock exchange can have a large investor base spreading geographically, which boost economic growth at a global scale.

Public debt platform- long term benefits

1. The stock exchange is also a supplier of long-term benefit schemes to the investors; it provides a public debt platform by trading government securities that produce a colossal financing resource to perform governmental activities.
2.  By executing public debts as government securities traded by Banks, Life Insurance Corporations, Provident funds, Pension to support governmental needs of the country’s economic development, benefits economic growth.

INVESTOR BENEFIT

High returns

In stock exchanges, high returns are often supplied by long-term financial trends, where the price value of the stock occurs after some time but provide significantly high returns. This factor is one of the most promising benefits of the stock exchange to investors.

Transparency

A stock exchange facilitates transparency in managing the stock in the capital market;

1. it evaluates the actual worth of securities and provides the intrinsic value of the company to avoid deceitful investments
2. Safeguarding general public interest by ensuring equitable allotment, easy transfer, disclosure of proper information, etc.,
3. Assures the existence of good faith or an absence of fraud concerning the issue of securities.
4. Providing activities of quick transfer registration and corporate information

Safety in investing

1. Stock exchanges’ seamless physical and electronic trading platforms perform to ensure complete safety and security to the market participants.
2. Its mechanism offers more excellent protection to investors by adequately investigating the company and the projects before listing and marketing its stocks to the capital market.
3. Its fundamental function of handling stocks and securities are governed under proper rules and regulations and is abided by the stock exchange to ensure protected trading
4. All the fraudulent activities will be duly enquired and sanctioned.

Tax deferments

Investors have the advantage of deferring from paying tax for the invested stock; there is no need to include the trading in assessment for the purchased stocks when filing tax returns.

Accessibility

1. Since the stock exchange is a growing market and is dynamic; it creates new opportunities and serves people; it has been designed as a single-window trading platform accessible to many people throughout the country and worldwide.
2. Buying and selling may be resorted to from any part of the world through online trading platforms
3. It facilitates faster deal settlement for investors across the counters spread over the entire county.

List of Stock Exchanges in India

As per SEBI, there are a total of six stock exchanges in India out of which three are permanent. The list of the same is given below:

What is a Listed Company?

A listed company is the one whose shares are publicly traded on the stock exchange. Such companies need to confirm the listing requirements of that exchange strictly. This consists of a minimum earning level and the number of shares listed.

Companies that are listed on a stock exchange take out an SME IPO or Initial Public Offering by which they sell shares to the public and in return they raise a whopping amount which in turn helps them to grow business to a new level.

Here, the prices of the shares are based on the supply and demand of the share. The Bombay Stock Exchange or BSE India currently lists more than 600 companies.

How to list a company in the stock market?

Companies can list themselves in the stock market by issuing an IPO. Companies have to comply with SEBI (the market regulator) norms before their IPO application. Once the IPO is approved or when application for IPO is accepted, interested investors, both retail and institutional, subscribe to the IPO and invest in the shares.

It is important to remember that the number of shares available for investors are limited. So not every investor who applies for the IPO gets share allotment. This allotment is through a random process to ensure there is no bias in choosing the beneficiaries. After the shares are allotted to the investors, they are listed on the stock exchange.

Top Ten Benefits of Stock Exchange Listing in India

Companies listed on the stock exchange get exposure, capacity to uphold control, increased accountability, etc. Apart from this, there are several benefits of stock exchange. We have brought to you ten topmost advantages of the same as given below:

Boosted Profile

One of the most significant benefits of listing companies on the stock exchange is that listed companies have a better profile.

Furthermore, they are more visible and recognizable when compared to their privately-held counterparts. In turn, this helps the company to allure new customers and clients towards it.

Besides, it also aids in drawing the attention of media, which might be daunting and expensive for unlisted companies.

Access to Capital

According to studies, one of the major impairments to business growth is the lack of affordable capital.

However, companies listed on stock exchanges can easily raise affordable capital by dispensing more shares to investors for the buying purpose.

Additionally, the capital raised could be utilized for the company’s growth and paying for different costs.

Collateral Value of Securities

Lenders accept the listed securities as collateral for credit facilities. Moreover, a listed company is eligible to borrow from the financial institutions easily since it is rated favourably by the lenders of capital.

Furthermore, the company can opt for raising extra funds from the public through the new issue market with high assurance. Hence, listing a company on a stock exchange would surely be beneficial.

Capacity to Uphold Control

Usually, listed companies do not depend on the capital provided by venture investors. In return for acquiring shares of a confidentially-held company, venture capitalists have to regularly uphold on possessing some degree of the company’s regulation.

Stock exchanges let companies maintain more control and sovereignty, for the reason that people who get the shares of a publicly-traded corporation only hold the limited rights accessible to all stakeholders.

Liquidity

The listing of the company reinforces liquidity by providing shareholders the opportunity to realize their investment value. Besides, it lets shareholders negotiate in the shares of the company, sharing risks and benefitting from any increase in the organizational value.

Transparency and efficiency

Transparency and efficiency are two such aspects that are crucial for the company’s operation and growth. Listing brings both efficiency and transparency to the company. Besides, the management team and board of the listed company hold accountability towards its shareholders.

Furthermore, the listed companies also require following the timely compliance by providing disclosure to the Exchange/Information/shareholders as per the applicable guidelines or as setting up in the listing agreement.

Enhanced Visibility

When the company goes public, it enhances its credibility as well as visibility among institutions and the investing public. The same is due to the reason that such companies have to comply with several regulatory norms. Furthermore, at the time of conducting operations, it ensures complete transparency.

High Returns

Achieving a higher return on investment is something every company or business in the world requires. Stocks are uncertain assets that imply that they don’t have any assured return and have the risk of losing money.

Nevertheless, the stock market’s long-run trend has been rising indisputably. Stocks have the uppermost return of any venture asset over the long term. Hence, it is again one of the most important benefits of stock exchange and listing.

Increased Exposure

A company listed on the stock exchange often gets more exposure than others. IPOs are mostly advertised and could be covered in investment journals, financial magazines, and news stories.

Investors are more interested to invest in listed companies. In turn, the company grows even more when more investor invests more capital in the same.

Increased Accountability

Companies listed on the stock exchange have greater financial accountability. Furthermore, every listed company needs to follow the exchange rules strictly.

Besides, it must be transparent in every business dealing and financial data reporting. In turn, it lets listed companies to promote accountability for the actions of all company managers, leaders, and insiders.

Problems of Stock Exchange Listing

But there are some drawbacks to being listed on a stock exchange, such as:

• Significant costs associated with listing on an exchange, such as listing fees and higher costs associated with compliance and reporting.
• Burdensome regulations, which may constrict a company’s ability to do business.
• The short-term focus of most investors, which forces companies to try and beat their quarterly earnings estimates rather than taking a long-term approach to their corporate strategy.

Many giant startups (also known as unicorns because startups valued at greater than $1 billion used to be exceedingly rare) choose to get listed on an exchange at a much later stage than startups from a decade or two ago.

While this delayed listing may partly be attributable to the drawbacks listed above, the main reason could be that well-managed startups with a compelling business proposition have access to unprecedented amounts of capital from sovereign wealth funds, private equity, and venture capitalists. Such access to seemingly unlimited amounts of capital would make an IPO and exchange listing much less of a pressing issue for a startup.

The number of publicly-traded companies in the U.S. is also shrinking—from more than 8,000 in 1996 to around 4,300 in 2017.