The good companies cannot be brought to stock market listing unless they themselves are willing to be enlisted. Hardly two dozens of about 300 recognised good companies are listed with Bangladesh's bourses. These companies are fundamentally strong and worth for long-term investment in their stocks. Others are better tools for gamblers who swing prices of selected stocks no matter whether there is any real reason for change in their prices. The Dhaka Stock Exchange (DSE) is dominated by day traders as good stocks are not available for the long-term investors.
There are not many investors who go for long-term investment in the bourses. Day traders in some sense are also gamblers as they depend on other day traders for making the market moving up, giving them a chance of making capital gains. This condition is perfectly suitable for brokers who receive commission depending on the volume of turnover or purchase-sale of stocks in their houses. Had there been no day traders or had they only numbered a few, the total turnover of the Dhaka bourse would have come down to a negligible portion of what it is having now. Not necessarily, the gamblers win every day but on an average, big gamblers win over the small ones who at one point become paupers and leave the market. But there is no dearth of supply of gamblers.
New gamblers, mostly posing as investors, enter the market and fill up the void. This scenario of domination of trade by the gamblers, or, to use a respectable term, 'day traders', can be rectified, to an extent, by supplying the market with good stocks. The day traders are not interested in the quality of stocks; they are interested in junk stocks which are traded in high volumes. Also, stocks of small capital bases draw their attention occasionally, but if those stocks are fundamentally strong, they show little interest in them.
The Bangladesh economy is growing fast; the size of its economy has already crossed $ 240 billion, but supply of good stocks to the market is not picking up proportionately. The year 2015 saw some growth in the supply of Initial Public Offerings (IPOs) but that did not happen in 2016. The truth is that of 32 IPOs or so that hit the secondary market in the period between 2014 and 2016, most of them were junks. Those IPOs did not offer any hope to the investors for considering them as tools for long-term investment. Also, within a year or so, the sponsors or the sellers of these IPOs sold most of their holdings to the investing public resulting in a serious depletion of the sponsors' portion of the stocks. That resulted in lack of attention of the sponsors to quality management of the companies or giving good dividends to the ordinary shareholders who hold majority of stocks in these companies.
The fact is that majority shareholders or sponsors of the companies turn out to be minority shareholders after their sales of shares, but still manage the companies whereas the majority shareholders, who are public, are to beg for good dividends from them. But all companies are not behaving in the same way. Some good Bangladeshi companies and the few multinationals listed with the bourses do not sell any share from their original holdings and they care about giving good dividends to the investors.
Listing with the bourses requires the companies to perform in some areas more openly which many companies do not want to do. The companies, which are unwilling to go public, do not want to come under public scrutiny of their businesses. The listed companies are more open and transparent; there is little they can hide. But the non-listed companies can easily deceive the other stakeholders.
The present tax concession in the form of low corporate income tax for the listed companies is deemed by the non-listed ones not enough for going public or listing with the bourses. These companies think the liability of going public is more than the benefits they would receive from the listing.
The listed companies are to present quarterly business results to the stakeholders and the regulating authorities which the non-listed ones find too burdensome. Secondly, most of the good companies are family managed; they fear they will lose family control on the business once they go public.
The reluctant multinational companies do not bother about 10 per cent less corporate income tax for listing. They want to pay more taxes but also want more business. To them, business matters more than the tax concession for listing. They are here to maximise profits for their foreign shareholders. They are not even prepared to part with an equity of even 10 per cent in favour of Bangladeshi investors no matter what tax benefits this country offers them.
How can the unwilling good local and foreign companies be brought to the stock market listing? Obligatory regulation may work, as it worked in India and some other countries. The other option is to reduce corporate tax for the listed companies from the existing 25 per cent to 20 per cent. The world is in a race to reduce various tax rates on businesses. Bangladesh also should go the same way.
Only additional tax benefits can act as incentive for the good companies, both local and foreign, going public. If Bangladesh wants a good stock market, then it will have to bring more good companies to the market. With the present listing, we should not expect the market going that far. The authorities should sit with the managements of recognised local good companies and also with those of the multinationals to know what else can be done to bring them to the stock market.
The writer is Professor of Economics University of Dhaka.
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