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Answer to Question #5860 in Finance for LaMarcus Streeter

Question #5860
Financial Management (Explain how answer was reached)

5. Which of the following statements is NOT CORRECT?

a. When a corporation’s shares are owned by a few individuals and are not traded on public markets, we say that the firm is “closely, or privately, held."

b. “Going public” establishes a firm's true intrinsic value, and it also insures that a highly liquid market will always exist for the firm’s shares.

c. When stock in a closely held corporation is offered to the public for the first time, the transaction is called “going public,” and the market for such stock is called the new issue market.

d. Publicly owned companies have shares owned by investors who are not associated with management, and public companies must register with and report to a regulatory agency such as the SEC.

e. It is possible for a firm to go public and yet not raise any additional new capital at the time.
Expert's answer
“Going public” establishes a firm's true intrinsic value, and it also insures
that a highly liquid market will always exist for the firm’s shares is NOT
CORRECT statement because going public led to the development of private stock
exchanges where the shares of private companies may be traded under restricted
terms. But the liquidity of the share is higher when the number of daily
agreements increases instead of their restriction.

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