question archive Which of the following statements is not correct? (a) When a corporation's shares are owned by a few individuals who own most of the stock or are part of the firm's management, we say that the firm is closely, or privately, held
Which of the following statements is not correct? (a) When a corporation's shares are owned by a few individuals who own most of the stock or are part of the firm's management, we say that the firm is closely, or privately, held
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Which of the following statements is not correct?
(a) When a corporation's shares are owned by a few individuals who own most of the stock or are part of the firm's management, we say that the firm is closely, or privately, held.
(b) Going public establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares.
(c) Publicly owned companies have sold shares to investors who are not associated with management, and they must register with and report to a regulatory agency such as the SEC.
(d) 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.
(e) It is possible for a firm to go public and yet not raise any additional new capital.
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Answer:
The correct option is B that is "Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares.
Explanation:
The above statement is incorrect because if a company goes public that is invite investors by the form of IPO, the private stock exchanges could arrive so that the shares of the private companies may be traded. The shares issued in the market are less liquid than the stocks traded in the public market. There might be a situation in which the price of the IPO may be low and if the demand is high then the price can also rise. As a result, there may be fluctuation in the intrinsic value of the stock.
Therefore, the correct option is B.
