Which is a genuine drawback of going public?
AThe firm must repay the money it raises
BThe firm loses the right to issue any bonds
CThe firm must reveal operating and financial data
DThe firm must pay a fixed dividend every quarter
Answer & Solution
Correct answer: C. The firm must reveal operating and financial data
1. Going public carries real costs alongside the money raised.
2. There is no guarantee an initial public offering will sell at all.
3. It is expensive, with big fees for investment bankers, brokers, attorneys, accountants and printers.
4. Once public, the company is closely watched by regulators, stockholders and securities analysts.
5. It must reveal operating and financial data, product details, financing plans and operating strategies, and providing that information is often costly.
6. Equity is not repaid and carries no obligation to pay dividends, so the first and fourth options describe debt-like burdens equity does not impose.
7. Some companies stay private for these reasons, among them Cargill, SC Johnson, Mars, Publix Super Markets and Bloomberg.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.5 Equity Financing_
Keep practising Financial Management and Securities Markets
Browse all Financial Management and Securities Markets questions for US CMA Part 2, or explore more Financial Management topics.
Related questions
Since the Sarbanes-Oxley Act, what do CFOs consider their top priority?How did the NYSE answer the NASDAQ's head start in electronic trading?What does Regulation FD require of public companies?The Securities Investor Protection Corporation insures each customer's account up to what What is insider trading?What does the Securities Act of 1933 require of a new securities issue?Electronic communications networks let traders deal directly in what is known as which marThe NASDAQ lists more companies than the NYSE. On which measure does the NYSE still lead?