Many companies that go public with an IPO don’t actually need additional cash to continue growing their operations. Why might such a firm decide to go public?

Jump to Solution
Category:

Many companies that go public with an IPO don’t actually need additional cash to continue growing their operations. Why might such a firm decide to go public?

0
0

Many companies that go public with an IPO don’t actually need additional cash to continue growing their operations. Why might such a firm decide to go public?

Explanation & AnswerSolution by a verified expert

Explanation

Firms decide to go public without having need for additional capital due to the following reasons:

Enhanced liquidity: When the general public is invited to invest in the company, it will bring more funds and enhance the liquidity.
Trading platform: Through going public, securities of the company are listed on a trading platform that enables it to raise capital while strengthening its structure and reputation.
Diversification: By inviting the general public for investment, a company can diversify its holdings by purchasing additional assets either financial, physical or otherwise through raised capital. Physical assets in turn help to increase the production capacity and thus the profitability of a firm.
Reduction in cost of capital: With inclusion of more equity through public offer, a company can reduce the amount of debt in its capital structure and thus reduces the cost of bearing debt.

Verified Answer

Firms decide to go public without having need for additional capital because:

It enhances the liquidity of the firm.
A firm can trade its securities on a recognised platform.
Going public helps to diversify the holdings of the company.
Going public reduces the cost of capital incurred by the firm.

Purchase this answer to view it. $5
Login/Sign up for free, load your wallet instantly using PayPal or cards and purchase this solution to view it.

Looking for the solution to this or another homework question?

If you need essay writing assistance or homework solutions, log in or sign up for a free account and ask our writers any homework question.