Disadvantages of Flotation | Shares

In this article we will discuss about the disadvantages and drawbacks of flotation.

(a) There are considerable costs in flotation and listing.

(b) It takes lot of management’s time, before and after flotation and listing.

(c) The company must comply with the stringent stock exchange regulations.

(d) It will be necessary to meet the regulatory requirements for disclosure of information, including details of managerial remuneration.

(e) A dilution of management control will result from the widely held shares of the company.

(f) The affairs of the company are subject to public scrutiny and fluctuations in share price may sometime cause adverse image in the public.

(g) Since the costs of flotation are higher, other ways of rising finance would reduce the cost of funds.

(h) Listed company status will put additional burden on the managerial staff.

(i) The buying and selling of shares by the directors and other related persons may attract the provisions of ‘insider trading’.

(j) There will always be pressure from shareholders to declare dividends, which may not be in the interests of the company.

(k) The adverse campaigns against the company may drive down the share price, it is technically called ‘bear raids’.

(l) The investors always expect the raise in the share price. The company’s growth and profitability may not afford the increase in share price always.