Reading: Why Go Public?

Being public often also gives firms access to cheaper financing. In particular:

• Lower cost of capital: As we have argued in the preceding section, listed securities are less subject to liquidity risks than unlisted securities and therefore generally carry a lower cost of capital. 
  
  
• Better capital markets access: Once a firm is listed, it also has better access to the capital market for future rounds of financing. For example:
  • While the initial listing process is complex and expensive, issuing additional shares at a later stage (so-called Seasoned Equity Offerings, SEO) is then much quicker and cheaper. This alternative is obviously only available to listed firms.
  • Being a publicly traded company often significantly increases the visibility of a firm with potential new investors.
  • Public companies also subject themselves to monitoring by external entities such as financial analysts, auditors, regulators, etc. This lowers the information asymmetry about the financial viability of the company and should therefore also make debt financing easier.
    
    
• A new currency: Their own shares
  • Once listed, the shares of a company turn into a liquid financial asset with a market price.
  • Firms can use that asset as currency in their transactions.
  • For example, for a listed firm, it is generally easier to pay for an acquisition with their own shares (a "share deal") because there is much less uncertainty about the value of these shares.