Should Companies Go Public?

According to China Securities Index Co. Ltd., the number of companies listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange is 1,572 and 2,128 respectively as of the end of July. That’s a significant increase compared with 1,061 and 1,715 listed on these two markets five years ago.

From medical treatment to petrochemical, the Internet to food and beverage, and infrastructure to animation, the business of listed companies covers energy, finance, communications, manufacturing, transportation and other key industries, all of which are closely related to people’s livelihood. According to the 2020 Fortune China 500 List, the total revenue of China’s top 500 listed companies reached 50.5 trillion yuan ($7.26 trillion) in 2019. It means the total revenue of the companies on the list exceeded half of China’s GDP of 99.1 trillion yuan ($14.24 trillion) in that year.

With the growing influence of listed companies on people’s daily life, the question of whether or not companies should go public has gained more public attention. Supporters believe that going public will open up a new financing channel and improve the company’s reputation. Opponents argue that public listing will bring a variety of transaction costs to the company, and will lead to decentralization of control and open the possibility of hostile takeover.

PROS

CHEN ZHIWU

Economist Beijing

Besides raising more money, a public listing has plenty of other benefits for companies. The stock market provides entrepreneurs with a possibility for monetizing and pricing the expected income in the future. With this possibility, they can arrange their wealth more flexibly and set a long-term development strategy for the company. If the company does not go public, entrepreneurs cannot liquidate their stocks and the success of the company can only be assessed annually, rather than instant recognition.