The Pros and Cons of Being Publicly ListedWilliam Bradley is the founder and chief executive officer of a private firm calledRobo-Tech Inc., which specializes in developing robotic limbs.Robo-Tech's sales are on therise, gross profit margins arestrong, and market share isgrowing, so Bradley feels that the timing is right to retool the manufacturingoperation, expand the distributionnetwork, and add new products in order to remain competitive and grow thefirm's value.Robo-Tech needs to acquire additional financingresources, and Bradley has decided to take his company public in order to meet itslong-term goals.

Bradley understands that going from private to public requires some major adjustments. Inparticular, instead of reporting to a few privateinvestors, management will be responsible tohundreds, or eventhousands, of new"owners" who expect a good return on their investment. This public pressure may at times push the company to focus onshort-term gains rather thanlong-term goals. In addition to dealing with new outsideshareholders, Robo-Tech will have to comply with theSEC's stricter reporting requirements on public companies. Forexample, quarterly and annual reports must be filed with the Securities and Exchange Commission and an annual report must be sent to all shareholders.

UnderBradley's management,Robo-Tech has had a history of strong financial performance and solid growthpotential, and well developed strategic vision and business plan. In order to help with the process of goingpublic, Robo-Tech has hired a team of professionaladvisors, includinglawyers, investmentbankers, and accountants. These professionals will assistRobo-Tech with theregistration, valuation,marketing, and placement processes.Robo-Tech will also have to decide on a listingexchange, where its shares will continuous trade after the public offering. Options include the New York StockExchange, the American StockExchange, a regionalexchange, or the Nasdaq Market.

If all goes accordingplan, Robo-Tech will soon have access to a new valuable external financingresource, that it can use to finance it future growth potential.

To Do

a. ForRobo-Tech, what are the advantages of being a publicly listedcompany?

b. ForRobo-Tech, what are the disadvantages of being a publicly listedcompany?

c. IfRobo-Tech prefers that its shares trade on a centralizedexchange, what listing exchanges make the most sense forRobo-Tech andwhy?

d. OnceRobo-Tech has sold its shares to the public does it care whether capital markets areefficient? In otherwords, how does market efficiency affectRobo-Tech?