Raising funds through an initial public offering (IPO) is one of the primary reasons that stock markets exist.

A company can seek to raise capital for a variety of reasons, such as to fund expansion, allow early-stage investors to cash out some of their investment, or for the acquisition of rivals.

And a company not only benefits from the funds it obtains from going public, with an IPO also helping to enhance its management accountability and professionalism in the long run.

Management are the key players whose decisions hold major responsibility for a company’s wellbeing and success.

Once listed, a company can gain enhanced investor confidence, while shareholders can benefit from its improved operational efficiency and effectiveness.

Investor confidence

Listing on the stock exchange not only brings extra capital to a business, but undergoing the process also represents a firm commitment to enhancing and developing internal controls as well as outlining definite roles of management, with such actions improving investor trust.

A company about to launch on the stock market will generate media interest, with news outlets looking to follow up on the launch and for more information on the firm.

Companies having gone through the IPO process will hence enjoy more recognition to potential investors as well as new strategic partners.

For example, whenever a company discloses information related to its business operations and financial performance, it will attract the attention of the public – including potential investors and/or institutional investors. This in turn will help to further increase recognition.

Furthermore, not only do companies receive a great deal of attention from becoming a listed company, but they also benefit from heightened credibility.

To complete an IPO, a company must undergo intense scrutiny to ensure that what it is reporting about itself is correct.

This scrutiny, combined with people’s tendency to put greater trust in public companies, can lead to increased credibility for a company and its products/services.

DBD Engineering held an IPO in September 2021. SUPPLIED

The recognition received from holding an IPO, and the firm commitments made to business operations and financial performance by going public, can also build strong confidence among investors prior to the key performance of the listed company.

Improved effectiveness

The management of a public company must be accountable to its shareholders, who, in turn, play a role in ensuring that the firm operates in an efficient and effective manner.

Having a strong team will ensure the business is run efficiently, with effective strategies maximising profit. A highly responsible leadership ensuring profits grow as planned gives a company greater ability to expand.

Having proper corporate governance will not only benefit investors, but also the company as a whole.

With sustainable business growth and strong management, an IPO is a big step forward as it helps the company access alternative sources of funds, whether equity or debt financing.

A company having obtained listed status can access debt financing more easily and with better terms due to its credibility, transparency and accountability.

Meanwhile, existing and new shareholders will also benefit from capital gains whenever the share price increases, which reflects the strong performance of the company through its effective and professional management team.

Overall, going public is one of the best choices available to a company to acquire an injection of funds to support and expand business operations, while investors can benefit from the wellbeing of business sustainability with management accountability and professionalism.

Further benefits of the IPO process for companies include enhanced corporate governance, greater access to strategic partners and the ability to attract better qualified human resources.

Prepared by: Cambodia Securities Exchange (CSX), Listing and Disclosure Department.

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