WHY FIRMS GO PUBLIC: THE CASE OF TADAWUL

Abstract

If a company chooses debt financing or equity financing may be related to its structure, i.e., a public or a private company. This study will focus on the reason why any private company would want to choose equity financing and transform into a public one and all the fallouts of such decision. The study critically analyses the characteristics of both public and private companies. Moreover, the process of transforming from private to public one is analyzed. Using data from 2006 to 2016 from the World Bank the characteristics of publicly held versus privately held companies are analyzed and discussed. It is concluded that if a company is financially strong and operates internationally it is better to go public as international operations can be difficult to manage with a limited set of boards and a huge reliance on debt financing. Moreover, by going to public, stocks will provide additional capital, keeps the directors away from illegal issues as it is a limited liability company where constant auditing ensures safe operations and accounting, and easy to franchise as the name of company as statements are available to the public. On the other hand, if the company is small and promising, it is feasible to stay private to hide strength from strong competitors until this strength is established