An Examination of Equity Sharing Policies: What Causes Them to Fail-and Succeed?

Some Third World nations have adopted policies encouraging foreign-held firms to go public. These policies are intended to increase local participation in the economy and to distribute wealth more evenly. Numerous economic, legal, and institutional factors heavily influence the viability of such policies. They are most likely to be successful if: 1. sufficient local investors can afford the stock, 2. institutional investors can invest in equity securities, 3. the securities market is adequately developed, 4. the government does not seek to establish local control over the enterprise, and 5. the nation can afford the risk of deterring some new foreign investment. Companies will be more likely to go public if they: 1. are paying taxes by ''the book,'' 2. have no competitive reasons for wanting secrecy, 3. do not have more attractive sources of financing, 4. are offered a fair price for their shares, 5. desire to expand or modernize, 6. are not so vertically integrated as to fear disruption of planning, 7. do not use transfer pricing to shift profits, or 8. wish to ensure effective control.