KARACHI, June 26: Corporate and security regulations based on international legal standards and best practices are intended to be economical, efficient and effective for promoting robust corporate sector growth and broadbased capital market. The regulators have also tried to benefit from the US experience.

Yet, the view both in the United States and Pakistan among not so large and small company managements is that the regulatory hassles are too expensive in terms of time and money spent on complying with the cumbersome laws. The number of companies has been shrinking faster than those seeking listing. This has limited the number of shares that investors could have access to buy. Some 40,000 private companies prefer not to go public, the number of firms quoted on the stock exchanges has fallen in the past few years by 75-80 companies to 700. In private companies, the number of shareholders is restricted to family and friends.

A number of factors have combined to reduce the growth in number of listed companies. It is stated that the low rates of interest are preferred to cost of equity and the regulatory hassles. The difference in corporate tax for listed and non- listed companies is gradually being eliminated. Much of the private investment is being made in strengthening of new businesses through flotation of corporate bonds by big companies with track record.

There is also a point of view that though broadbased capital market is one of the major objectives, it is equally if not more important, to have robust corporate sector with firms with potentials to develop into global outfits. Shares of large government corporations like OGDC, PIA, Southern Gas, etc., are being disinvested through the Stock Exchanges for public subscription, as a first step, towards privatization.

Finally, the major market players including the brokerage houses focus on a very few large companies like Hubco and PTCL. They prefer big juicy transactions as do their peers in the United States.

According to a recent report in Business Week, many small American firms reckon that being a really listed company is not worth it. A record number of firms this year would go private this year, exceeding last year's 86 outfits. Many smaller firms are not even thinking of going public. An investment banker is quoted saying: "Many entrepreneurs no longer dream of going public because they see the hassle outweighing the potential benefits." New legislation such as Sarbanes-Oxley is sharply raising the cost of being a public company.

Now, institutional investors like mutual funds including pension funds and hedge funds carry far more weight in the market than individual buyers. The institutional buyers are not interested in outfits with small market capitalization because it is difficult to trade big blocks of their shares. In Pakistan, the Mutual Fund industry has investible funds of Rs10 billion, or four per cent of the bank deposits, says a senior banker. In America, the investment banks are cutting back on research on smaller firms which limits their trading and depresses their value. The situation is similar in Pakistan.

In the United States, a growing amount of capital is now available from the private sources. In Pakistan, business houses now put more of their funds into investment than they did in the past. The low interest rates have helped companies to improve their balance-sheet through refinance and to fund their business through cheap credit.

A visible trend in the local market is to create corporate giants, which cannot only withstand international competition but also develop global reach. Blessed with scale and market knowledge and dominant market shares, it is stated, big companies are better placed than potential rivals, to finance innovations to compete in the global market.