Question

Assume that you are the CFO of a company and that is considering going public and issuing equity in the New York Stock Exchange (NYSE).

a) Provide two reasons why this might be a good decision?

b) What is your primary social responsibility if your firm goes public?

c) Your company is thinking about making an investment in New Zealand. Your company venturing into New Zealand may result in the loss of employment for some hard-working local employees (there will be a shift in some jobs overseas). How will this information affect your decision making?

Answer 1

a: Going public increases the creditworthiness of the firm. It also allows the company to raise more funds.

b: The primary responsibility is to disclose all relevant information to the stakeholders and to maximize their wealth. All management decisions must be made keeping in mind the impact on the shareholder wealth.

c: The loss of jobs will bring negative impact to the goodwill of the company since jobs are bveing shifted abraod. This will impact the stock prices and hence the decision of going public may not yield the desired results.