Stock Exchanges – Linking Investors and Public Companies
One of the major purposes of a stock exchange is to assist companies with raising capital by selling shares to investors. Stock market investing is not only a way to make an investor’s money grow, it also plays an important role in the economy. Rather than having money lying in the bank, that money is put back into circulation in a way that promotes the growth of the company being invested in, resulting in new employment opportunities, leading to more consumer dollars circulating in the economy. Of course, not all investments will result in prosperity all round, and investors should make us of available tools to investigate the company they are considering supporting.
Mergers and acquisitions are a way to increase product lines, cut costs, increase market share and pool resources and expertise. Stock exchanges offer a platform for listed companies to negotiate takeover bids and merger agreements. It is generally agreed that, due to the stringent regulations imposed by authorities such as the Securities and Exchange Commission, public companies tend to adhere to high standards of management and efficiency. Stock exchange listed companies also support principles of transparency, as through the sales of shares to the public, they have many owners who have a right to know how the company is being run. Although corporate mismanagement may still take place, this is more readily brought to light and dealt with in public companies.
Stock exchanges assist governments to raise capital for development projects through the sale of bonds to the public. They also act as a barometer indicating the state of the economy, as share prices rise and fall driven by market forces. Stock exchanges allow investors to own a part of large corporations without huge capital outlay. Many investors have started out small and gone on to make a reasonable living, or even become wealthy, by playing the stock market – bearing in mind, of course, that there are no guarantees, and bigger rewards generally come with bigger risks.