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CFA Level I · CFA Level I Exam · Organizational Forms, Corporate Issuer Features, and Ownership

A private company's owners are considering converting to a publicly traded corporation. Which outcome is most likely?

Converting to a publicly traded corporation most likely gives owners easier access to capital markets and share liquidity, but it brings heavier disclosure and regulatory requirements. It also increases the separation of ownership from control, which raises agency issues rather than removing them.

  1. AOwners gain easier access to capital markets but face greater disclosure requirementsCorrect
  2. BOwners avoid separation of ownership and control
  3. COwners face lower regulatory and reporting costs than before

Explanation

Going public widens access to capital and share liquidity, but listing brings extensive disclosure and regulatory obligations and greater separation of ownership and control. The other options reverse these effects.

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