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Discussion Board
If you owned a successful company, would you keep it private or have it become a publicly-traded company?
I would prefer to make the company publicly-traded because this offers more chances for growth. To begin with, going public increases access to more capital than may be offered by private investors, venture capital firms, and institutional investors (Berk, DeMarzo and Hartford, 2021). Further, going public increases the opportunity to secure more funds from private investors (Berk, DeMarzo and Hartford, 2021). Going public is associated with stringent regulatory and reporting requirements such as the declaration/filing the companys finances with the Securities and Exchange Commission (SEC). These regulations enhance transparency and make it easy to value the company, which, in turn, increases the number of private investors willing to invest in the company.
Berk, DeMarzo and Hartford (2021) point out that by going public, a company opens itself up to a high level of reporting regulations and requirements that may be costly. However, in my view, such transparency may be beneficial for the company as it would enhance the level of compliance and minimize the risk of mismanagement that could cause reputational damage.
a) If you go public and as your company grows, would you prefer raising capital by issuing stock, bonds, or a combination of the two?
Both stocks and bonds have their share of advantages and disadvantages. For this reason, I would go for a combination of the two. Issuing bonds is a form of debt financing. By issuing bonds, the company enjoys tax advantages because interest payable to lenders is a taxable expense that reduces the companys pre-tax...…could finance its growth through private equity financing or debt. In private equity financing, the company could seek funding from angel investors, venture capital firms, institutional, and corporate investors (Berk, DeMarzo and Hartford, 2021). Corporate investors are corporations that buy stakes in private companies to earn a return. Institutional investors are companies such as foundations, universities, insurance companies, and pension funds that manage huge sums of money and often invest directly in private firms (Berk, DeMarzo and Hartford, 2021). Alternatively, the company could approach venture capital firms, which raise funds to purchase stocks in young private companies, or individual investors who may be willing to invest. However, these private sources will often raise limited funds and the business may have to additionally source for debt financing by either taking out a bank loan or floating bonds and debentures…
References
Berk, J., DeMarzo, P., & Harfod, J. (2021). Fundamentals of corporate finance (5 th ed.). Pearson.
Taillard, M. (2012). Corporate finance for dummies. John Wiley & Sons.
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