The Pros and Cons of Being Publicly Listed William Bradley is the founder and chief executive officer of a private firm called Robo-Tech Inc., which specializes in developing robotic limbs. Robo-Tech's sales are on the rise, gross profit margins are strong, and market share is growing, so Bradley feels that the timing is right to retool the manufacturing operation, expand the distribution network, and add new products in order to remain competitive and grow the firm's value. Robo-Tech needs to acquire additional financing resources, and Bradley has decided to take his company public in order to meet its long-term goals.

Bradley understands that going from private to public requires some major adjustments. In particular, instead of reporting to a few private investors, management will be responsible to hundreds, or even thousands, of new "owners" who expect a good return on their investment. This public pressure may at times push the company to focus on short-term gains rather than long-term goals. In addition to dealing with new outside shareholders, Robo-Tech will have to comply with the SEC's stricter reporting requirements on public companies. For example, quarterly and annual reports must be filed with the Securities and Exchange Commission and an annual report must be sent to all shareholders.

Under Bradley's management, Robo-Tech has had a history of strong financial performance and solid growth potential, and well developed strategic vision and business plan. In order to help with the process of going public, Robo-Tech has hired a team of professional advisors, including lawyers, investment bankers, and accountants. These professionals will assist Robo-Tech with the registration, valuation, marketing, and placement processes. Robo-Tech will also have to decide on a listing exchange, where its shares will continuous trade after the public offering. Options include the New York Stock Exchange, the American Stock Exchange, a regional exchange, or the Nasdaq Market.

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

To Do

a. For Robo-Tech, what are the advantages of being a publicly listed company?

b. For Robo-Tech, what are the disadvantages of being a publicly listed company?

c. If Robo-Tech prefers that its shares trade on a centralized exchange, what listing exchanges make the most sense for Robo-Tech and why?

d. Once Robo-Tech has sold its shares to the public does it care whether capital markets are efficient? In other words, how does market efficiency affect Robo-Tech?