Avoiding the stock exchange

It is common to organise businesses as private limited companies, and there are more than 100 000 such companies in Norway alone.

Some of these companies choose to be listed on a stock exchange to facilitate trading of the shares (ownership interests) in the company. At the end of 2009, 208 companies were listed on the Oslo Stock Exchange.

In his doctoral thesis at BI Norwegian Business School, Morten Josefsen tried to find common characteristics for the companies that choose to be listed on the Oslo Stock Exchange.

Choices, choices

Companies that list their companies on the stock exchange make it easier to trade shares in the company.

“A listing can make it easier for the company to raise funds for new projects,” Josefsen states. It also makes it easier to use the company’s own shares as payment for ownership interests in other companies.

However, a listing on the stock exchange also has a cost aspect.

• The company must hire highly paid advisors (brokerage firms, business lawyers, etc.) to assist with the stock exchange introduction.
• A listing on the stock exchange also entails stricter requirements from the authorities and the stock exchange, for example as regards financial reporting.
• When a company is listed, this often results in more owners. The old owners have to share control of the company with the new owners.

“The company will then weigh the advantages of a listing against the costs,” says Josefsen.

Attractive laboratory

Norway is a very attractive laboratory for finance researchers, as detailed information on all private limited companies  is available.

Josefsen has obtained information on the ownership of all new companies listed on the Oslo Stock Exchange from 2000 to 2008, i.e. stock exchange introductions.

He has chosen to disregard companies spun off from existing companies and subsidiaries of foreign public limited companies.

Josefsen’s thesis covers 120 independent companies listed on the Oslo Stock Exchange during the above-mentioned period. He compared these companies with ownership data for the about 100 000 companies that have not gone public.

Wants to retain control

In his thesis, Josefsen found that there are two types of companies that choose to be listed on the stock exchange.

1.Companies with many owners.

2.Companies dominated by institutional owners.

“It seems as if institutional owners make companies go public at an earlier stage. Companies with many owners also seem to realise the benefits of a public listing,” says Josefsen.

Companies with large dominating owners are least likely to go public.

“This may indicate an unwillingness to relinquish the control they have over the company,” he says.

Reference:

Morten Josefsen:"Three essays on corporate control", doctoral thesis BI Norwegian Business School 2011