The introduction in 1981 of shelf registration of securities

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The introduction in 1981 of shelf registration of securities

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How do you think each of the following items would affect a company’s ability to attract new capital and the flotation costs involved in doing so?
a. A decision of a privately held company to go public

How do you think each of the following items would affect a company’s ability to attract new capital and the flotation costs involved in doing so?
b. The increasing institutionalization of the “buy side” of the stock and bond markets

How do you think each of the following items would affect a company’s ability to attract new capital and the flotation costs involved in doing so?
c. The trend toward financial conglomerates as opposed to stand-alone investment banking houses

How do you think each of the following items would affect a company’s ability to attract new capital and the flotation costs involved in doing so?
d. Elimination of the preemptive right

How do you think each of the following items would affect a company’s ability to attract new capital and the flotation costs involved in doing so?
e. The introduction in 1981 of shelf registration of securities

Explanation & AnswerSolution by a verified expert

Explanation

Increase in institutionalization implies an increase in willingness of investors to invest in securities for the purpose of fund management. So, the securities are frequently applied without the requirement of an underwriter or agent which indicates an increase in the company’s capital and reduction in its flotation cost.

Verified Answer

Increase in institutionalization will improve the company’s ability to attract new capital and decrease the floatation cost.

Explanation

Increase in institutionalization implies an increase in willingness of investors to invest in securities for the purpose of fund management. So, the securities are frequently applied without the requirement of an underwriter or agent which indicates an increase in the company’s capital and reduction in its flotation cost.

Verified Answer

Increase in institutionalization will improve the company’s ability to attract new capital and decrease the floatation cost.

Explanation

Financial conglomerates often provide attractive as well as profitable offers with financial securities and portfolios as compared to banking houses. So, the investors are pleased to invest in securities of financial conglomerates that results in an increase in the company’s ability to attract new capital and reduce its flotation cost.

Verified Answer

Financial conglomerates helps a company to improve its ability to raise capital and reduces the flotation cost.

Explanation

Elimination of preemptive rights might affect the existing shareholders adversely as they are not given preference over other investors while issuing new capital. Moreover, they can withdraw their investment in the firm but it may not affect the company’s ability to attract new investors and flotation cost.

Verified Answer

Elimination of preemptive rights may not affect the company’s ability to raise new capital and its flotation cost.

Explanation

Introduction of shelf registration of securities induces registration of few offers of securities together. Thus, it reduces the registration, listing and other costs incurred by the company which in turn reduces its flotation cost and enhances the company’s ability to attract new capital.

Verified Answer

Introduction of shelf registration reduces the flotation cost and enhances the company’s ability to attract new capital.

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