Capital is no doubt the most important input for a company’s business expansion.

In today’s competitive environment, companies regardless of industry and size need to acquire additional capital to invest in infrastructure and production or research and development, for example.

In general, companies can access many different sources of funding, such as their existing shareholders or bank loans.

However, such funding is either short-term or limited, raising concerns for companies in implementing their long-term expansion plans.

The securities market is another means of raising capital, one that can not only provide long term and limitless sources of funds, but also deliver additional benefits for a company.

Here are some of the main reasons why a company should consider raising additional funds through the stock market.

Obtaining a long-term and limitless source of funds

Raising funds through the stock market allows listed companies to obtain long term and limitless sources of funds from a large pool of public investors in the market.

Obtaining a long-term source of funds by raising capital through the stock market means companies are not required to pay back the principal.

This increases the cash and liquidity of the company compared to a bank loan, which requires companies to pay interest at regular intervals and at maturity.

The securities market is popular because of the ability to access unlimited funding as a company can continue to raise capital by issuing additional stocks at any time based on its need and potential.

Improving corporate governance and credibility

Publicly listed companies are subject to rules and regulations, such as minimum capital and profits, corporate governance, reporting obligations, shareholder structure, human resources and other standards imposed by the stock exchange and securities commission to ensure investor protection, transparency and fairness.

One example is the reporting obligation that requires each listed company to publish a timely financial report audited by an independent auditor.

To be able to go public, the company needs to comply with such regulations, resulting in improved corporate governance.

Strong corporate governance increases credibility among stakeholders, such as investors, business and partners – and especially customers.

Increasing market value

A company’s worth is measured more than by just its cash holdings. Other wealth includes reputation, management structure and the ability to provide investors with liquidity, for example.

These traits will add value to the company when it decides to go public.

According to a study, the public companies on the S&P 500 are valued around 17 times higher than their earnings, while a private company is valued at just one to five times higher.

Increasing company visibility

A listed company generally draws attention from domestic and foreign investors, the media and the public as its financial or operational affairs are reported in newspapers and on TV, being communicated both within and outside the country of origin.

This enhances the visibility and profile of the company, which further improves the awareness of its products and services.

Allowing existing shareholders to exit

Last but not least, going public allows a company’s shares to be publicly traded on the stock exchange.

This means new and existing shareholders will be able to convert their holdings into cash with ease. Another benefit is talent acquisition as high quality personnel are more likely to join companies that offer stock option plans that exit with ease.

Contributed by: The Cambodia Securities Exchange, Market Operations Department Email: [email protected]

Tel: 023 95 88 88 / 023 95 88 85

Disclaimer: This article is compiled solely for informative and educational purposes only and does not make any recommendations or offer investment advice. The Cambodia Securities Exchange is not liable for any losses or damages caused by using it in such a way.