Why Are Companies In Emerging Markets Reluctant To List On The Stock Market? The Cambodian Case

Abstract

The launch of the Cambodia Securities Exchange (CSX) in 2011 was seen as a coming-of-age for the financial sector in Cambodia to provide more financing choices for domestic companies. However, for over a decade, CSX remained among the smallest stock markets globally compared to Southeast Asian exchanges. This study examines why Cambodian companies that meet listing requirements abstain from listing on the stock market. Through a comprehensive survey of 274 firms, the study unveils critical insights into the challenges hindering the adoption of initial public offerings (IPOs) on CSX. The findings show that founders/CEOs' fears about losing ownership and control strongly influence their decision-making, preventing stock market listing. The study also underscores the delicate balance of information disclosure obligations, stressing that excessive post-listing disclosure requirements can deter companies from listing. On a positive note, the research shows that tax incentives can motivate companies to list on the stock market. Based on the above findings, the study recommends that policymakers offer tax amnesty programs that allow companies to come forward voluntarily, admit prior financial irregularities, and remedy their tax positions without heavy penalties. This will encourage more companies to list on CSX. Additionally, policymakers should create training for founders to address the fear of losing ownership and control following a stock market listing. Highlight successful examples of companies listing while the founders still hold significant control to demonstrate that listing may be a strategic move for growth rather than a mean of relinquishing control.

JEL Classification: C25, G32, G34, O16