Very often we ask businesses to go public for raising their equity capital through stock market. We argue that raising of equity or long-term capital through listing with the bourse is cheaper, and also rewarding in the long run, as it brings fame to business. When we argue for a business going public we have another notion in mind, that notion is that of public interest. Going public does not only mean raising of capital through the capital market, it also means giving ownership of business to the people. The subscribing people in the equity of business become its owners alongside founders or sponsors of business. The market economy did not offer any better option for the people than this to become owners of big businesses. Persons who subscribe to the equity capital from the initial offering or who buy stocks of business from the secondary market become known as the shareholders in business. All shareholders together elect members of management board and that of auditor in business as per the corporate guideline of the regulator. Today, industrial democracies, to an extent, are synonymous with shareholders' democracies. The route to equity holding in business is also seen as a better way of having equitable distribution of income in favour of a large number of members of the public, especially those belonging to middle and upper middle classes. From this perspective, the publicly owned businesses are rewarded, both directly and indirectly, by the government in many countries of the world as against the privately or family-owned businesses. In Bangladesh, any business that goes public enjoys a lower corporate income tax up to 10 per cent in addition to the income tax rate rebates enjoyed by its shareholders.
A business that goes public finds it easier to sourcing credit from banks and also enjoys an edge over its competitors in doing business. A publicly traded business also finds it easier to earn the trust of consumer public and even easily develops consumer brands. It was found by researchers that a business was small till it went public, but a business became big after its going public. Any business in any market economy with aspiration to be big had to go public. Without going public there may be some big and reputable businesses, but they are a few in numbers. A business which takes equity capital from the public is to go by some rules relating to its management. For example, it is to call the general meeting of the shareholders annually, where some agenda relating to the interest of shareholders are discussed and passed. The agenda for discussion and approval at the annual meeting of the shareholders include the passing of the audited balance sheet and the audited income statement of the company, the election of directors to the management board, approving the dividend or distributable profit per share among shareholders as recommended by management board and electing or selecting auditor also. Shareholders are grouped as majority and minority shareholders but in case of rights they are treated equally. Most of the times the agenda of shareholders' meeting are passed through consensus, but voting also takes place whenever it becomes necessary. Shareholders are sent a copy of the annual report of business, which contain chairman's statement regarding business of the company in the just ended financial year and also that of the directors'. But the vital part of the annual report is the balance sheet and income-expenditure statement, both audited and certified by a qualified auditor. The regulator in Bangladesh fixed up many other items that are to be included in the annual report under the regulatory order called corporate governance rules. In a sense, the annual report of the company listed with the bourse can be treated as the storehouse of information for shareholders and other potential investors. Those days are gone when auditors used to certify false balance sheet and income statement and when the annual report was concocted with fake and messed-up information.
In Bangladesh, many of the good companies did not go public, perhaps they did not see anything good in it, or even if they saw merit, they thought the cost far outweighted the benefit of going public. Most of the family-owned businesses want to see that their businesses do not come under public scrutiny or any type of supervision from an external organisation like the BSEC. Also, so long the door to long-term capital from the commercial banks remains open, we think not many businesses would opt for raising capital through the capital market. To encourage them to sourcing their long-term capital from the capital market, the government should consider a further reduction in the corporate income tax in case their business goes public.
The writer is Professor of Economics, the University of Dhaka