Capital MarketsOne wonders if the government has keen interest in the development of the country’s stock exchange. Since the establishment of the capital market, one has seen very little activities as to the flotation of government companies.
We saw government floating its shares in companies like AngloGold Ashanti now AngloGold Ashanti, Cocoa Processing Company, Produce Buying Company now PBC Ltd and State Insurance Corporation now SIC Insurance Ltd.
There are good number of listed companies on the divestiture list, yet no effort is being by government to have them listed on the Ghana Stock Exchange. This economy cannot make the need headway if the country’s capital market is under utilise. Stock Exchanges are not now institutions. They are institutions that have been tried and tested over years.
Stock exchanges provide long-term capital for business and industry. Stock markets or exchanges did not start recently. By the late 1500s, British merchants were experimenting with joint-stock companies intended to operate on an ongoing basis. One such was the Muscovy Company, which sought to wrest trade with Russia away from Hanseatic dominance.
The next big step was in Amsterdam. In 1602, the Dutch East India Company was formed as a joint-stock company with shares that were readily tradable. The stock market had begun.
Joseph de la Vega, also known as Joseph Penso de la Vega and by other variations of his name, was an Amsterdam trader from a Spanish Jewish family and a prolific writer as well as a successful businessman in 17th-century Amsterdam. His 1688 book Confusion of
Confusions explained the workings of the city's stock market.
It was the earliest book about stock trading, taking the form of a dialogue between a merchant, a shareholder and a philosopher, the book described a market that was sophisticated but also prone to excesses, and de la Vega offered advice to his readers on such topics as the
unpredictability of market shifts and the importance of patience in investment.
By 1698, a broker named John Castaing, operating out of Jonathan's Coffee House, was posting regular lists of stock and commodity prices. Those lists mark the beginning of the London Stock Exchange Today stock markets have become the avenue for raising long-term capital for businesses.
Stock exchange provide companies with the facility to raise capital for expansion through selling shares to the investing public. When people draw their savings and invest in shares (through a IPO or the issuance of new company shares of an already listed company), it usually leads to rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilised and redirected to help companies' management boards finance their organisations.
This may promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels of firms. Sometimes it is very difficult for the stock investor to determine whether or not the allocation of those funds is in good faith and will be able to generate long-term company growth, without examination of a company's internal auditing.
FACILITATING COMPANY GROWTH
Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.
Both casual and professional stock investors, as large as institutional investors or as small as an ordinary middle class family, through dividends and stock price increases that may result in capital gains, share in the wealth of profitable businesses. Unprofitable and troubled businesses may result in capital losses for shareholders.
By having a wide and varied scope of owners, companies generally tend to improve management standards and efficiency to satisfy the demands of these shareholders, and the more stringent rules for public corporations imposed by public stock exchanges and the government.
Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors).
OPPORTUNITIES FOR SMALL INVESTORS
As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.
Governments at various levels may decide to borrow money to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the stock exchange whereby members of the public buy them, thus loaning money to the government.
The issuance of such bonds can obviate the need, in the short term, to directly tax citizens to finance development—though by securing such bonds with the full faith and credit of the government instead of with collateral, the government must eventually tax citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.
BAROMETER OF THE ECONOMY
At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.
Therefore if the stock markets are any thing to go by, the government must show some seriously in deepening the capital markt by listing various institutions under its umbrella. By this it will pave the way for the private sector to also take advantages offered by the market.