A good question
About three and a half years ago, I published an article in my blog, please click “Why a company go public?“. Recently, a reader suddenly wrote to me and mentioned this article. Ask me the opposite reason──“Why companies don’t want to go public?” This is really a good question.
Not cost-effective to invest resources
Going public costs a lot of money
In order to go public, a company must prepare for many years, investing resources and considerable costs, which will crowd out the company’s resources; and after going public, there are still a lot of fixed expenses every year. This is a considerable financial burden for new startups.
French telecom operator Orange announced in September 2024 that it would delist from the New York Stock Exchange (NYSE) considering the financial costs of a secondary listing.
Financial reports wastes resources
Companies listed on the U.S. stock market must release financial reports every quarter, while most other countries require them to release financial reports at least half a year. In order to release financial reports, many key people in various departments of the company must set aside time to prepare for the necessary financial report releases.
Cumbersome regulations
Listed companies have to face more legal regulations than private companies; many companies are unwilling to do so. Being a public company also has its costs, including increased regulatory scrutiny, increased operating expenses associated with expansion and increased transparency for shareholders.
The rich prefer privatization
Keep low profile
For listed companies, basically most of the information must be disclosed. Some people don’t want their business or financial details made public.
Victor Li Tzar-kuoi, the eldest son of Hong Kong’s richest man Li Ka-shing, was kidnapped. In the early days, he was kidnapped by gangsters because he was a listed company. Thoma Wu of Taiwan’s Taishin Bank also had the same experience of being kidnapped by gangsters.
Don’t want to share profits with others
Especially for companies that are small in size, family-owned companies, or even century-old companies. There are many small and medium-sized companies in Taiwan, and many of them are very profitable. Human nature dictates that there is no need to share the money you earn with others.
Financial aspects
No pressure to raise funds
Most companies go public to raise funds and expand their business scale; however, some companies do not need to raise funds from the public and therefore do not need to use listings to raise funds.
Going public is no longer the only way to raise funds
The methods of raising funds are becoming more and more diversified, and listing companies is no longer the only way to raise funds. Private placements are another popular method of raising capital for businesses.
Special considerations
Keep it mysterious
There are many public or private companies that refuse to go public because they do not want to make the company’s internal business secrets, core technologies, or operating information public to the public after listing.
State-owned enterprises
In all countries around the world, there are a large number of state-owned enterprises that are not allowed to be publicly listed because of special tasks, legal requirements, or various considerations.
The founder’s persistence
There is a large, very profitable, and almost universally known national food company in China called “Laoganma”, but it has not yet been listed on the market. Because the founder insisted on “no loans, no financing, no listing,” even government officials’ repeated suggestions to list the company were rejected by founder Tao Huabi.
Perhaps your first knee-jerk response is that it must be too small to be worth mentioning? “Laoganma” is a large-scale enterprise with annual sales of 600 million bottles and revenue of tens of billions. It has been around for decades and has been passed down to the second generation.
Capital market pressures
Don’t want to deal with investors
Listed companies are under too much pressure and must withstand various tests from shareholders and the market. It would cause trouble for the company’s direction, culture, and operations. Given the trade-off between the two, we decided not to go public.
Market favors large-cap stocks
Wealth and asset managers, whose funds are getting larger, prefer large-cap stocks because they can have a clear impact on the performance of their funds. The result is that stocks of smaller companies are less popular.
Indexes, or various ways of calculating performance in capital markets, work against small caps.
Related articles
- “Why companies don’t want to go public? prefer to staying private“
- “Why do many Chinese companies want to be US listed?“
- “Why a company go public?“
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