The decision of 'going public' by a company is considered to be a complex decision that requires careful consideration and planning as it requires additional obligations and reporting requirements. State any two such obligations and reporting requirements. Why are capital markets regarded as 'financial intermediaries' ? State.

Question

Accepted Answer

Two obligations and reporting requirements when going public are:

1. **Increasing Accountability to Public Shareholders:** Once a company goes public, it becomes answerable to a large number of shareholders. The management must regularly disclose financial results, operational performance, and any material events that may affect the company's value.

2. **Need to Maintain Dividend and Profit Growth Trends:** Public companies face pressure from shareholders to consistently deliver growing profits and regular dividends. Any significant decline in profitability or suspension of dividends can lead to a fall in share price and loss of investor confidence.

Capital markets are regarded as **financial intermediaries** because they perform the role of transferring financial resources from surplus units (people who have savings and do not want to spend) to deficit units (entrepreneurs who need funds for economic activities). They act as a bridge between savers and borrowers by mobilizing individual savings and making them readily available to those who need them in industry, trade, finance, and government.