Expensive cannot be collateralized hard to predict returns It is a problem

Expensive cannot be collateralized hard to predict

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Expensive, cannot be collateralized, hard to predict returns It is a problem because protecting intellectual property is easier when they are privately held- the result is more equity financing Bonds are a source of debt financing and is public because of this I would consider the bond market not to be a good alternative. o Long term aid that can be private or public o No, because cash flow problem- could securitize, could go in to convertible bonds (equity side) Bank loans are not a good alternative. Intangible assets are hard to re-sell so it would not make sense to get a loan which would make getting a loan costlier to the business 4. Why might equity financing make more sense? What sort of equity financing? Private equity financing would make the most sense- it’s easier to protect intangible assets like intellectual property when they are privately held Because you will not be able to resell intangible assets it makes sense to finance them with equity instead of debt. If you finance with debt you will eventually have to payback this loan which you’ll do out of profits instead of giving these back to the share holders Don’t need to be super predictable and you’ll have control Also could finance with internal revenue D. Read “A (going) private matter” (Item 15.11), “Where Have All the Public Companies Gone?” (Item 15.12), and “Stock Picking Is Dying Because There Are No More Stocks to Pick” (Item 15.8), and answer the following questions: 1. What are the benefits to a company of being listed? What are the costs?
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Information value (good to see performance of managers) Ownership is more liquid (easier to exit and diversify) Makes M&As easier Can link comparison to performance of stock It is easier to finance capital when a company is public Can make a ton of money with an IPO It is easier to expand as a public company because it is easier to obtain capital Capital raised can pay expenses or debt Costs: o Annual listing fees and compliance costs- expenses o Cost of equity- paying shareholders o must keep added disclosure with investors o Comply with SEC rules and regulations o Pressure of the market- will focus on short term results instead of long o Getting audited is expensive o Possibility of getting orphaned (stock prices drop and no one will buy) 2. How has the number of public companies decreased (mechanism)? Through M&As o big companies are buying small companies and keeping them as private companies the benefits to going public are not as obvious as they were in the past, because private companies have an unprecedented ability to raise capital to finance investment often of equal or better terms than the public market firms are exiting and less firms are coming in 3. Why has being public become less attractive? Because the regulations and costs have increased in the wake of scandals, such as Enron. Companies are facing high public equity costs and a decrease in their valuation (how much their shares trade for) Private equity is more attractive Costs are more burdensome because small companies are the ones that typically are converting to go public 4. What has been the effect on investment management?
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