research paper on public limited company

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• Published: 16 August 2021

Impact of corporate social responsibility on organization’s financial performance: evidence from Maldives public limited companies

• Ibrahim Sameer   ORCID: orcid.org/0000-0002-1177-4066 1  

Future Business Journal volume  7 , Article number:  29 ( 2021 ) Cite this article

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The main objective of this study is to determine the CSR disclosure and to find out the association between CSR and FP by the public companies of Maldives. This study used a mixed-method research choice and is longitudinal research. The study period was from 2014 to 2018. Data were collected from annual reports of the listed companies in MSE. The sampling technique used was judgmental sampling, and the data were analyzed from STATA 15 software by using panel data regression. The finding reveals that diversity and ROA, environment and ROE, diversity, and EPS, and when the size of the firm controlled, there exhibit significant negative relation between CSR and ROA; hence, it can conclude that there exists a significant negative relationship between CSR and FP. This study has implications for the academician and corporate world in understanding CSR and FP in developing countries like the Maldives. One of the main consequences of this study is the CSR framework adopted in this study which is not a custom-tailored instrument specific to the Maldives instead chose from another research paper. Further, the sample size was also very limited due to that generalization may not be possible in a large population. This paper spreads the understanding of the relationship between CSR and FP.

Introduction

Corporate social responsibility (CSR) is one of the most controversial and significant topics since the 1950s, and it has been growing since then [ 29 ]. CSR discipline is one of the rigorous research areas among practitioners and academicians [ 28 ]. In the history of the corporate world for the first time, CSR was mention by Bowen [ 21 ] in his seminal book Social Responsibility of the Businessmen in 1953. In his book, the central question, he argues that and continues to be asked, was “ what is the responsibilities to society may businessmen reasonably be expected to assume .” Bowen [ 21 ] also stresses the importance of knowing business ethics so that it can lead to superior enduring performance. Cruz et al. [ 43 ] confirm that CSR initiatives are significant in the context of business ethics and found a healthy positive attitude toward business ethics and CSR.

Despite the long history of CSR discipline, up to date, it remains to be debatable and immature in some areas. For instance, one area that is debatable and one of the central focus given is determining the relationship between CSR and corporate financial performance (CFP). According to Das and Bhunia [ 47 ], the whole literature on this area can be categorized into three. Some studies show a positive correlation between CSR initiatives on FP [ 167 , 197 ] and Yeganeh and Barzegar [ 7 ]. On the other hand, Hirigoyen and Rehm [ 78 ] and Madugba and Okpara [ 118 ] found negative correlation between CSR and FP. Lastly, [ 35 , 104 ] found no correlation between CSR and FP.

During the past six decades of CSR discipline, numerous finding has caught the attention of CSR practitioners and academicians [ 195 ]. These studies results suggest that CSR provides insurance like effect on financial performance against adverse events of company [ 147 , 203 , 204 ], CSR initiatives can enhance employee organizational commitment and organizational performance [ 5 ], and most of the workers like to work and can attract more potential employees for an organization that has an excellent reputation for being socially responsible [ 69 , 77 , 112 ]. Therefore, now a day to pursue sustainable development and enhance the goodwill of companies has started to publish CSR disclosures in annual company report or CSR reports.

In the Maldives, it is not mandatory for public companies to publish the CSR report. Nowadays, companies announced CSR disclosure through the annual report. It indicates the prominence given by companies to CSR activities, but the effect of CSR on financial performance is not locally being investigated so far in the Maldives, due to several reasons. First, research base culture did not exist in the Maldives and recently public university came into the picture. Secondly, public companies in the Maldives assume that similar management practices (such as CSR) adopted by foreign countries might be relevant in the Maldives. According to [ 181 ], most of the research done on CSR is investigated in a western developed nation such as the USA, UK, Germany, and Australia and is not that clear whether it can apply in developing nations. Burton et al. [ 25 ] and Khan [ 97 ] suggested that to understand CSR, it is a must to understand the cultural aspects of that country because developed nations' influential factors may not apply to the Maldives. Third, there is no CSR measurement practice in the Maldives and how it should report. Fourth, the impact of CSR on financial performance has not been investigated locally so far in the Maldives. Due to these reasons, it is worth investigating the association between CSR and financial performance.

From the above discussion, it is clear that most of the research done on CSR was dominated by a western developed nation such as the USA, UK, Germany, and Australia [ 181 ]. According to Das and Bhunia [ 47 ] though there are intensive empirical research done in order to find relationship between CSR on FP [ 14 , 62 , 137 ], the result of previous studies is indeterminate. Hence, this is a gray area with inconclusiveness, and this research gap motivates the researcher to conduct a study on this topic.

According to Wang et al. [ 196 ], there are numerous researches on CSR discipline in respect of FP in foreign countries, especially in developed nations, indicating a dearth of studies in the Maldives context. As per the researcher's knowledge so far, there is only one study done [ 175 ] in the local context on CSR. In that research, the author investigates the CSR context in the Maldives and has not explored the CSR and FP relation. Hence, this provides a gap for further studies in finding the relationship between CSR and FP in public listed companies in the Maldives. Therefore, this study of CSR and FP in public listed companies in the Maldives tries to attempt to fill this gap in the literature.

To establish whether CSR (community, workplace, environment and diversity) positively/negatively correlated with Financial Performance (FP) of public companies in Maldives using ROA.

To determine whether CSR (community, workplace, environment and diversity) positively/negatively correlated with Financial Performance (FP) of public companies in Maldives using ROE.

To decide whether CSR (community, workplace, environment and diversity) positively/negatively correlated with Financial Performance (FP) of public companies in Maldives using EPS.

Following this brief introductory section, the rest of the paper is divided in the following manner: “ Literature review ” section discusses the meaning of CSR, why companies engage in CSR and empirical evidence of CSR and FP and theoretical framework. “ Research methodology ” section discusses the data collection and sampling procedure, model used in the study and the specification test. “Finding and analysis” section presents the empirical findings and discussion of the results, and finally, “Conclusion” section is the conclusion of the paper.

Literature review

According to [ 27 ], there were a vast number of definitions of CSR that have emerged in the academic literature. Some of the notable contributors that have defined CSR include [ 21 , 30 , 56 , 91 ]. In general, CSR can be defined as its responsibility toward its ecosystem.

Although there is a diverse definition given by scholars around the globe about CSR, there is no universally accepted definition of CSR [ 45 ]. Dahlsrud analyzed 37 most commonly used definitions of CSR. He concluded that there is a lot of congruency in the description and suggested that there are five dimensions in all the explanations and those are environmental, social, economic, stakeholders, and charity dimension. In the same tone [ 161 ] stated that there is no unique definition of CSR that can be acceptable around the globe. Finally, Hamidu et al. [ 72 ] reviewed CSR definition, its core characteristics, and theoretical perspective. They have suggested that in the academic world, there is no clear agreed definition of CSR, and the lack of homogeneity in the definition of CSR is due to the ever-shifting roles of CSR in the corporate world.

Empirical evidence regarding the relationship between CSR and FP

In the academic literature, the theoretical linkage between CSR and FP of the organization found inconsistency results [ 122 , 139 ]. Hence, the body of knowledge in this regards can be categorized into three spectra that is some argue that CSR can enhance FP of the organization, other researchers argue that CSR rather reduced firms’ performance, and finally, other schools of thought argue that there exists no relation between CSR and organization performance. Table 1 describes the summary of empirical findings of CSR and FP researches, and also it highlights the different variables used in the various study.

Researchers that are in favor of CSR and FP linkage argue that when company initiates CSR activities, it creates positive image in the mind of stakeholders; hence, the more company satisfy its stakeholders, the better financial performance of the company [ 51 , 53 ]. Likewise, the other proponents on this linkage advocate that by satisfying the interest of stakeholders and being more accountable to them can have positive effects on the financial performance of the company [ 38 , 151 , 201 ]. In light of stakeholder’s theory, [ 19 , 135 ] stated that consumers are willing to pay premium price for CSR initiatives companies’ products, and CSR activities can improve the image of the company among consumers and it help to improve customer loyalty [ 123 , 150 , 158 , 173 ]. Likewise, Turban and Greening [ 184 ] posit that CSR firms can attract more potential applicants, which in turn can be a competitive advantage for the organization. Another recent research done by them [ 68 ] documented that socially responsible companies can attract more talented employees to work on that organization, and also CSR firms can retain their employees over a long period, hence, it can lead to a competitive advantage over other companies. The proponent believed that engaging CSR-related programmed can benefit the organization in several ways, such as reduction in labor turnover [ 206 ], enhance reputation of company and achievement of business strategy [ 86 , 207 ], created sense of belongingness [ 34 ], attract more talented staffs [ 92 , 117 ], job satisfaction [ 109 ] and Sharma and Mishra [ 162 ] and be more committed to their work [ 20 , 54 ].

Conversely to the above argument, [ 58 ] advocates that there is only one responsibility of a corporate firm that maximizes shareholders' wealth. In line with this argument, [ 143 ] supports [ 58 ] claim stating that CSR is motivated by a socialist-collectivist agenda which are in paradox with capitalist/libertarian values of free enterprise and individualism. Furthermore, [ 132 ] suggest that the consumer does not check whether it is an SR company or not when making purchase decisions. But [ 140 ] documented that when making purchase decision consumer do take whether it is an SR company or not but the positive attitudes of consumer not transferred into actual purchase decision of consumer and this further being supported by [ 64 ] stating that buying SR product is a "moral duty" and this duty can be overridden by other preferences of consumer especially if it is budget consumer. Hence, this line of argument was stress by [ 58 ] documented that organization manager use firms’ resources for non-profit social activities at the expense of shareholders, and this has been supported by [ 88 ] in the "agency cost problem" which stated that the CSR cost incurred outweigh the benefits it brings to the company.

In the academic literature, the early research that supports the inverse relationship between CSR and FP is [ 105 , 157 , 188 ]. Vance's [ 188 ] support [ 58 ] preposition founds that being socially responsible does not bring any economic benefits to the company, rather, it reduces company stock returns. Further, this has validated by [ 11 ] who documented that the firm level of SR hinders FP compared to rivals. Likewise, [ 157 ] stated that engaging CSR activities lead wasting firms’ resources that can use in more productive opportunity for the firms. Further, they argue that managers of the company may engage in CSR not to increase shareowners' wealth, instead gain personal benefits. Looking into more recent studies on this line of the argument states that CSR is a manifestation of agency problem and is done at the expense of shareowner [ 80 ]. Moreover, [ 102 ] supported the findings of [ 157 ] and stated that the organization manager gets a good reputation at the expense of shareowner by investing more in CSR and also suggest that when the organization releases positive CSR news, then investors react slightly negative to those disclosures. Bhandari and Javakhadze [ 18 ] reveal that when an organization wants to satisfy its broad stakeholder’s entire group, then it may need to forgo lots of positive NPV project that may increase the shareholder's wealth.

The academic debate on CSR and FP has another possibility that both these are mutually exclusive, meaning CSR has no significant impact on FP of a company [ 122 , 139 ]. The scholars of this line of reasoning argue that CSR has no effect on financial performance of companies [ 61 , 95 , 137 ]. There are several studies conducted across the globe in finding the linkage between CSR and FP of specific industries or countries [ 55 ] and industries or countries specific research is incomplete up to date [ 44 ]. Kiliç [ 99 ] investigated online CSR disclosure practices by 25 banks in Turkey, the results suggest that all the banks in the country do at least disclose one dimension of CSR on the corporate website and also documented that highly visible banks disclose more information compared to the less visible bank. Furthermore, Pérez and Del Bosque [ 148 ] and Pratihari and Uzma [ 156 ] investigated CSR disclosure in Spain (former), and India (latter) founds that CSR positively impacts a customer in identifying the bank and CSR helps company in building brand and customer loyalty. Due to stated reasons, [ 14 , 83 ] found a positive association between CSR and FP. On the other hand, the influence on industry characteristics is also another area that has been investigated by scholars. For example, [ 15 ] called for more research to be done on potential heterogeneity of CSR’s influence on organizational performance across different industries. The reason for that is due to the impact the organization that brings to society is different. For instance, compared to other industries (such as banking, tourism and retail), the controversial sector (e.g., tobacco, alcohol, petroleum, utility, and steel) harms the environment more [ 89 ]. Therefore, [ 177 ] suggested that controversial industries are exposed more to the environment and social risk; therefore, companies in these industries need to do more CSR activities to gain the confidence of stakeholders.

Looking into empirical side of CSR and FP indicated positive relation mostly in developed and developing nation [ 14 , 42 ] and Maqbool and Bakr [ 162 ]. Conversely, some empirical studies show the inverse relationship between CSR and FP [ 169 ] and Hirigoyen and Rehm [ 78 ]. Yet there is body of empirical knowledge that do not support either of the above argument and those scholars found neutral or no relation between CSR and FP [ 95 , 109 , 137 , 163 ].

Though there are controversies in the above empirical studies, [ 32 , 142 ] conducted two different meta-analysis using 30 years of data. The authors have documented that CSR positively correlated with CFP. Further, another meta-analysis conducted by [ 17 ] also found that there is clear empirical evidence for a positive relation between CSR and FP. Conversely [ 123 ] meta-analysis of 251 studies documented positive (but small) association between CSR and FP. But meta-analysis of [ 146 ] included 159 reviews and recorded that 63% of the studies show positive, 15% indicated the contrary, and 22% shows a neutral or mixed association between CSR and FP.

In light of above discussion, it is clear that CSR and FP are inclusive in the academia. Therefore, this paper tries to investigate empirically whether there is any association between CSR and FP in developing nation such as Maldives. Most of the literature done in this discipline is in the developed nations, few studies in the developing nation, and no studies in the context of Maldives. Furthermore, this study tries to fill the imbalance that is there in the academia when public advocate companies in Maldives become more CSR orient. Hence, different hypotheses developed for this paper are given under conceptual framework (Fig. 1 ).

Conceptual framework

Research methodology

Population and sample.

This study focuses on listed companies of MSE. At present, there are eight companies listed in the stock exchange; two companies do not fit in the study period because the study period of this research is from 2014 to 2018. For this study, the remaining six companies' data have taken as a sample (75% of the population). This study adopts non-probability sampling and uses judgmental sampling techniques. Judgmental sampling is more useful when the researcher desires to collect data from a specific group to bring more reliable and precise results [ 171 , 179 ]. Žmuk et al. [ 208 ] recommended that if the researcher's target population is small, then to get satisfactory precision and accuracy level of the parameter of the estimate, researcher needs to include 70% of the samples population; here, in this study researcher study 75% of the population.

CSR framework for this study

It has been observed that CSR disclosure made by Maldivian Public companies is voluntary, and also it has been observed that there is no specific CSR framework in the Maldives. In determining CSR disclosure in academia, there are many different indices used in measuring CSR disclosure. The most well-known indices include: Dow Jones Sustainability Index [ 37 ], Fortune magazine reputation index [ 159 ], Global Reporting Initiative [ 113 ], MSCI KLD 400 social index [ 160 ] and Vigeo Index [ 100 ].

These indices have widely used in academia for measuring CSR performance (Waddock and Graves [ 191 ]). CSR disclosures vary between countries to countries, and there is no " one size fit all " approach [ 79 ]. For example, [ 199 ] argues national culture, political, and the civil system which often determines CSR disclosure. Xiao et al. [ 202 ] stated that CSR disclosure depends on the stage of social and economic development of the country. Moreover, [ 46 ] noted that the theories that are in the developed countries might not be entirely applicable due to different drivers of CSR. Conversely, in developing countries, CSR is more toward the economic environment (such as creating more jobs), filling government shortfall areas, and philanthropic charitable donations and ethics.

Furthermore, [ 59 ] stated that at this time, there is no generally accepted CSR reporting standard across the globe. In the same vein, [ 180 ] noted that the western world CSR concept could not be adapted as it is. It required modification based on the country/geographical needs. Therefore, in this study researcher is going to use the CSR standard developed by [ 122 ]. The adoption of this "CSR instrument" for this study is due to three reasons. Firstly, they have designed that instrument by taking into account different international standards, and academic literature [ 165 ], Centre for Corporate Research and Training 2003, Confederation of Indian Industry 2002). Secondly, it is developed based on the developing nation's cultural needs and thirdly very latest instrument.

Content analysis and coding procedure

This study uses the content analysis technique and uses the annual report to developed CSR index for public companies in the Maldives. Content analysis is a technique that has been commonly used in social science research for quite a long period [ 3 ]. Further, this method has been quite often used in CSR and FP research as well [ 62 , 95 ].

In content analysis, themes must be developed to make an inference from the data. In line with this reasoning, Milne and Adler [ 130 ] stated that construction and categorization of schemes are the essential part when using content analysis. This research adopted the [ 122 ] CSR framework; hence, the researcher used the categories of [ 122 ] CSR framework. It includes mainly four components, namely community, environment, workplace, and diversity. In this study, each public company listed in MSE has coded about different CSR disclosure categories identified in the annual report. Companies CSR is measured using adopted CSR framework under each category, there are eight different themes, and based on that researcher decides whether it is CSR disclosure or not.

One of the prerequisites of content analysis is that it requires systematic coding using predetermine criteria [ 70 ]. For this study, the different keyword used is the work of [ 122 ] CSR framework. This makes the coding process straightforward, and also it lessens the prejudice in determining CSR disclosure and how to categorize them. When the keyword and categories are used, it helps in decision rules, and also it improves the reliability and accuracy of the coding process [ 130 ]. For this study, the researcher uses the unit of analysis as a “ sentence .”

The procedure used in the content analysis of this study is that two independent coders were selected. Before coding and classification process begins, these two coders are given full training by the researcher on CSR disclosure, use of coding instruments, and explanation of different categories and types of disclosure in [ 122 ] CSR framework. In order to check degree of reliability and accuracy of intercoder, this study used four main methods that are used in checking the validity of content analysis [ 62 , 95 ], that is percentage of agreement [ 41 , 178 ], Scott’s π [ 174 ], Cohen’s κ [ 41 ] and Krippendorff’s α [ 101 ]. The intercoder reliability test of this study is presented in the below table.

After reviewing different methodologies in the content analysis, [ 136 ] suggested that a reliability test coefficient value higher than 0.90 would be acceptable at all levels, and any amount above 0.80 would be acceptable in most cases and stated that there exists a significant disagreement between the coder. Therefore, based on the accuracy benchmark suggested by [ 136 ], the results are cited in Table 2 , and all the reliability test values are higher than 0.90. Hence, it is safe to conclude that the reliability of this study is considerably high because the reliability test values are significantly higher than benchmark values.

Data collection procedures and sampling

In this study, the content analysis is used in extracting CSR information from the annual reports of the company, and CSR has been divided into four categories (community, environment, workplace and diverse) covering 32 items, to change qualitative information present in the annual report; this study used content analysis and changes that qualitative data to quantitative information using a dichotomous approach. In the dichotomous approach, if the item is disclosed (CSR instrument), then “1” is given, and if items not disclosed, then “0” and total CSR score of “ T ” company is calculated based on the following formula.

where di = “1” if disclosed and “0” if not disclosed. n  = maximum number of disclosed.

In this study, the proxy of CSR categories is considered as community, environment, workplace, and diverse, and the FP proxy is considered as ROA, ROE, and EPS, and moderating variables considered as firm size. The following section details down how the ration is calculated.

Return on asset (ROA)

ROA measures profits as a percentage of total assets, and ROA gives an impression to the investors how efficient the company in managing its assets in generating profits. The higher the ROA, better it is, and the formula used in calculating ROA is given below [ 69 ]:

Return on equity (ROE)

ROE measures profits as a percentage of total shareholders’ equity, and ROE gives an impression to the investors how efficient the company is generating profits using its shareholder's funds, or in other words, it measures profits made on each dollar of shareholders’ funds. ROE is calculated using the below formula [ 69 ]:

Earning per share (EPS)

EPS measures earning made for each common stockholders, and it also shows how much money the company is making for its stockholder; as a rule of thumb, if EPS is higher, better it is. EPS is calculated using the below formula [ 69 ]:

In the academic literature on CSR discipline, different scholars have used different control variables [ 193 ] such as firm size, firms age, firms leverage, capital intensity, and industry heterogeneity. For this study researcher going to use “firm size” as the control variables, the reason for that is because previous research has shown that larger firm tend to spend more on CSR than smaller firm [ 168 ], larger firm seen as the leader of the industry or they are the playmaker in the industry [ 76 ]. To measure the firm size, this study used the natural logarithm of total assets and is calculated using the following formula:

Panel data analysis

To test the hypothesis, “ Stata 15 ” software is used for quantitative data analysis. The data were gathered from 2014 and 2018 to test the relationship between CSR and FP. To test the relationship between CSR and FP, many scholars have used regression analysis [ 36 , 38 ]; however, this kind of analysis was critics by its multicollinearity errors [ 189 ]; hence, to avoid that error this research is going to used panel data, and panel data have widely been used in academia in order to check the relationship between CSR and FP [ 111 , 180 ].

The model used in the study

The CSR dimensions used in this research are community, environment, workplace and diverse; on the other hand, financial performance dimensions used are ROA, ROE, and EPS, and the control variable used in this study is the firm size. The independent variable and dependent variables of this study are CSR and FP, respectively. To estimate the direct relationship between CSR and FP, the three dependent variables (ROA, ROE, and EPS) equation used in this study can be expressed in the following ways:

where ROA = return on assets, ROE = return on equity, EPS = earning per share, Comm = community, Div = diverse, Env = environment and Wor = work.

To estimate the indirect relationship between CSR and FP, the moderating variables are included in the above equation, and it can be stated in the following ways:

where ROA = return on assets, ROE = return on equity, EPS = earning per share, Comm = community, Div = diverse, Env = environment, Wor = work and Fsize = firm size (natural logarithm of total asset).

In this study, three different kinds of panel data models are used, namely the pool regression model by OLS (ordinary least square), fixed-effect model, and random-effects model. In the pooled regression model, it pooled all the data together, ignoring the time series and cross-section nature of the data; hence, when pool regression combined all the data into one, it ignores the heterogeneity of the data that may exist [ 152 ].

The next model that is there is a fixed effect model (FEM) or LSDV model (least square dummy variables). This method allows for individual differences, meaning that it will enable heterogeneity compared with the OLS method. FEM methods are used in social science and business management research, by various academicians [ 13 , 40 ]. The main advantage of using this method is that it estimates the effects of independent variables on the dependent variable while controlling the effects of unobserved variables [ 162 ].

The last but not the least model used in this study is the random effect model (REM). One of the assumptions of REM is that the individual-specific effects are not correlated with the independent variables. Therefore, in the REM model, it can have varying interception value between cross-sectional data, and this variation is purely random. The main advantage of REM is it helps in controlling for unobserved heterogeneity when the heterogeneity is constant over time. The FEM and REM model can be denoted in the following formula, respectively:

where \(u_{i}\) is a fixed or random effect specific to individual (group) or time period that is not included in the regression, and errors are independent identically distributed, \(v_{{it}}\)  ~ IID (0, \(\sigma ^{2} _{v}\) ).

Specification test for the study

For this study, the researcher used three above discussed model, and to choose the best model, the following specification test has been carried out to select the best model.

Pooled OLS model or FEM model

This test examined whether pooled OLS or FEM model is best in examining the group effect in the panel data set. The hypothesis significance can be check through F -test value; if the null hypothesis is accepted, then pooled OLS is better than the FEM model [ 200 ]. The null hypothesis is stated in the following manner:

Pooled OLS model or REM model

This test examined whether pooled OLS or REM model is best in examining the random effect in the panel data set. REM can be tested through the Breusch–Pagan Lagrange multiplier (LM) test [ 200 ]. The hypothesis significance can be checked through Chi-square value; if the null hypothesis is accepted, then pooled OLS is better than the REM model. The null hypothesis can be stated in the following manner [ 4 ]:

FEM or REM model: Durbin–Wu–Hausman test (Hausman specification test)

Hausman specification test runs to check whether FEM or REM is the most appropriate model in the panel data. The Hausman statistic χ 2 is computed from the following formula [ 4 ].

where βc  is the coefficient vector from the consistent estimator. βe  is the coefficient vector from the efficient estimator. Vc  is the covariance matrix of the consistent estimator. Ve   is the covariance matrix of the efficient estimator.

The hypothesis for Hausman specification test can be stated as follows:

If the p value is less than 5%, then reject the null hypothesis and accept an alternative hypothesis meaning that in that case, the FEM model is more appropriate than the REM model. On the other hand, if the p value is more than 5%, then accept the null hypothesis meaning that the REM model is more appropriate than the FEM model [ 4 , 200 ].

Findings and analysis

Relationship between csr and fp, dependent variable: roa.

In assessing the impact of CSR and FP, Table 3 shows the results obtained from the regression analysis between the independent variables, which are data capturing the CSR and the dependent variable represented by ROA. The panel analysis for the pooled, fixed, and random effect model is presented below without the control variable.

The specification test shows that the random model is the most appropriate model for this analysis. The R -squared of 0.2568 indicates that the independent variables explain about 25.68% of the variability in the dependent variable ROA. Furthermore, the result shows that there is a strong negative relationship between diversity and ROA, while the result did not show a significant relationship between community, environment, work, and ROA. The random effect model can be specified below as follows:

After controlling for the size of the company, the result shows that size has a highly statistical significant P value of 0.000. However, the relationship between size and the ROA of firms exhibits a negative relationship, as shown in Table 4 . The result further shows that diversity has a significant negative relationship with ROA as it was before the control variable added to the model, and this shows that a percent increase in diverse will bring about a 44.78% decrease in ROA. Community, environment, and work did not show a significant relationship with ROA.

The R -square, which shows the extent to which the independent variables explain the model, has a value of 70.76% (0.7076). This means that the model explains about 70.76% of the variability in the ROA of the companies. The P value of 0.000 of the F -test shows that the model is a good fit, and the overall significance of the model is subtle. CSR relationship has been examined by different researchers, and the coefficient of size as a control variable has varied, though most of the time, always found significant [ 159 ].

The result from the random effect model with the control variables can be specified as follows:

Dependent variable: returns of equity (ROE)

Table 5 presents the result of the regression analysis using pooled OLS, fixed effect, and random effect model with ROE as the dependent variable. The number of companies examined is six, and the time period was 5 years.

The two-specification test shows that the pooled OLS is the most appropriate model for this analysis. The R -squared of 0.2506 indicates that the independent variables explain about 25.06% of the variability in the dependent variable ROE. The result also shows that there is a strong negative relationship between environment and ROE, while the result did not show a significant relationship between community, diverse, work, and ROE. The Pooled model can be specified below as follows with ε representing the unexplained part of ROE:

The pooled OLS result with control for the size of the company shows that the size of the company is not statistically significant as it has a P value of 0.163. Also, the relationship between size and the ROE of firms exhibits a negative relationship, as shown in Table 6 . The result further indicates that community, diverse, environment, and work did not show a significant relationship with ROE.

The R -square value, which represents to what extent the independent variables, explains the model comes out with a value of 0.3103. This means that the model explains about 31.03% of the variability in the ROE of the companies. The P value of 0.0927 of the F -test shows that the model is not overall significant.

The result from the pooled OLS model with size as the control variables can be specified as follows:

Dependent variable: EPS

Table 7 shows the results obtained from the regression analysis between the independent variables, which are data, used to cover the CSR and the dependent variable represented by EPS. The panel analysis for the pooled, fixed, and the random effect is presented below without the control variable.

The fixed-effect model is the most appropriate model for this analysis, as shown in Table 7 by the specification test. R -squared of 0.1658 shows that the independent variables explain about 16.58% of the variability in the dependent variable EPS. Furthermore, the result shows that there is a strong negative relationship between diversity and EPS, while the result did not show a significant relationship between community, environment, work, and EPS. The fixed-effect model can be specified below as follows with ε explaining the part of the model not captured by the independent variables:

In adding the control variable, which is the size of the company, the result shows that firm size has an insignificant statistical P value of 0.639. However, the relationship between size and the EPS of firms shows a positive relationship, as shown in Table 8 . The result further shows that diversity has a significant negative relationship with EPS as it was before the control variable added to the model. Lastly, community, environment, and work did show an insignificant relationship with EPS.

The R -square, which shows the extent to which the independent variables explain the model, has a value of 0.1100. This means that the model explains about 11% of the variability in the EPS of the companies. The P value of 0.1014 of the F -test shows that the overall model significance of the model is not strong enough.

The result from the fixed effect model with the control variables can be specified as follows:

Testing for multicollinearity

As presented in Table 9 , the multicollinearity result, which based on the rule of thumb, is that if VIF with a value less than five but must not be more than value is 10. The result shows that there were no multicollinearity problems with the independent variables. The work variable has the highest collinearity, but however, it is not more than 10. The values of all the VIF are still within the acceptable level of not more than 10.

CSR and FP relation

Table 10 depicts a summary of the hypothesis tested in this study. The subsequent part of this section discusses in detail the CSR and FP relationship of this research.

Relationship between community and FP (ROE, ROA and EPS)

Based on the findings of the study, H1, H2 and H3 were rejected, meaning that there is no significant relationship between CSR (community) and FP (ROE, ROA and EPS). This finding contradicts previous literature and there can be several possible reasons for that.

Firstly, CSR is a novel idea that “ creating shared value ,” which is proposed by Porter and Kramer [ 69 ] in the HBR. The basic idea behind this principle is that an organization generates economic benefit by way of creating value for the society, but [ 164 ] stated that this norm is not valid. The reason for the invalidation of Porter and Kramer [ 69 ] preposition is because CSR is multifaceted, so just by philanthropic giving the shared value cannot achieve, rather a company should develop a clear CSR program that aligns with the business purpose. In line with this reasoning [ 175 ] stated that in the Maldives only a few companies have formal CSR strategy. Thus, just by donating money to the community by the Maldives, public companies may not increase the FP of the enterprise. Furthermore, [ 164 ] suggested organization should run planned coordinated CSR program, otherwise that may not bring any benefits to the company, in line with this rational [ 175 ] stated that companies in the Maldives conduct CSR activities more “ informal and unplanned ” ways and indicated that in the Maldives only 23% of companies consult relevant parties when planning CSR programs for the upcoming years hence, that might be the reason for insignificant results of this study.

Secondly, CSR initiatives vary from industry to industry [ 31 ]. In line with this argument, [ 66 ] stress “ consumer service ” industries such as banking, general retail, and insurance, etc., companies focus more on community engagement CSR programs. Conversely, “ heavy ” industries such as oil and gas refining and utility, etc. companies concentrate more on natural environment CSR programs than community involvement programs. Hence, the CSR initiatives undertaken by Maldives public companies might have overlooked the industry it operates when developing CSR programs. That might be the reason for the insignificant result of this study.

Thirdly, McLennan and Banks [ 162 ] stated that understanding the need of the local community framing CSR community development programs is a necessity because of the heterogeneous nature of the city. Eweje [ 52 ] points out the main reason for the failure of the CSR community development program is due to not addressing the social and environmental issues that are intended to solve and lack of trust community have on the company. In the case of Maldives, some of the public company community development CSR programs politically driven. Shareef et al. [ 175 ] affirm in the Maldives, most of the prominent local entrepreneur is politically motivated. Hence, the CSR initiatives undertaken by Maldives public companies might be politically driven, conduct CSR community development programs without assessing needs, and unfulfilled promise leads to mistrust between companies and community might be the reason for the insignificant result of this study.

Relationship between environment and FP (ROE, ROA and EPS)

Based on the findings of the study, H4 was accepted, meaning that there is a significant relationship between CSR (environment) and FP (ROE), but the results found are negative. This finding is in line with [ 116 , 159 ]. These scholars argue that when the firm engages in disclosing environmental-related CSR programs leads to negative financial performance, and the reason is the cost involve in such programs outweighs the cost than the benefits it brings to the company. Shareef et al. [ 175 ] affirms that in the Maldives, only 18% of businesses people believe cost reduce when the organization engages in CSR (environment) related activities.

Conversely, based on the findings of the study H5 and H6 were rejected, meaning that there is no significant relationship between CSR (environment) and FP (ROA and EPS). Therefore, this study finding contradicts previous other literature and there can be several possible reasons for that.

Firstly, Maldives is a developing country, and the state regulates most of the corporate-related things as the caretaker of the country. Therefore, most of the things related to environment protection such as air pollution, biodiversity, carbon emission, deforestation, and energy efficiency strictly governed through laws and regulations rather than business-driven initiatives. According to [ 134 ] CSR as a voluntary contribution and does not require laws to follow. But in developing countries like the Maldives, CSR is more government-driven than business-driven. As discussed earlier, a caretaker of the society government has enacted and made a mandatory requirement for business by law that may be related to the environment. Hence, stakeholders in the Maldives do not consider mandatory CSR disclosure as real CSR initiatives. Due to that, the improved financial benefits may not be evident in environment-related affairs.

Secondly, the so-called " environmental investors " are still the minority in the investor's markets [ 7 ]. A country like the Maldives, where CSR is at its infancy stage, may not have " environmental investors ." In line with this reasoning [ 175 ] stated that CSR in the Maldives is " mediocre " and documented that environmental protection and ethical standards are CSR practices of business, but customers do not consider environmental protection and ethical standards are CSR practices that local companies should adhere. Therefore, in the Maldives context, " environmental investors " dilemma might not be true due to that in the short term, firms may not gain any financial benefits.

Thirdly, CSR disclosure between the firms, especially the Industry, which it operates, leads to more CSR disclosure [ 22 , 60 ]. In line with this thinking [ 190 ], argue that companies that negatively affect the environment tend to disclose more compare with other Industry. In line with this reasoning, [ 175 ] suggest that the primary focus of tourism companies in the Maldives focuses on environment protection than any other aspect of CSR. The other business owners belong to other Industries focus their CSR activities on another aspect, such as community development. In line with this thinking, most of the sample companies listed in the MSE not regarded as a controversial Industry hence financial gain not materialized.

Relationship between workplace and FP (ROE, ROA and EPS)

Based on the findings of the study, H7, H8 and H9 rejected, meaning that there is no significant relationship between CSR (workplace) and FP (ROE, ROA and EPS). This finding is in line with [ 93 , 155 ], which stated workplace and FP have no significant relation. On the other hand, this finding contradicts previous literature and there can be several possible reasons for that.

Firstly, in the academic literature, CSR and workplace (employees) show a very positive picture. CSR-related programmed can reduce labor turnover, created a sense of belongingness, attract more talented staff, and be more committed to their work. Conversely Brieger et al. [ 162 ] advocated that the dark side of the CSR has not been explored. CSR companies might do some window dressing to portray to the public that the company is a socially responsible company at the expense of employees [ 7 ]. For example, in the Maldives, some public companies' MD salary is very high, but the employee's salary was not competitive. Previous literature shows that socially responsible reputed companies' wages are significantly low [ 138 ]. Furthermore, Brieger et al. [ 162 ] founds that working in CSR committed company may lead to employee work addiction, which may harm the well-being of the worker, family, and friends. Due to the stated reasons, employees working in public companies in the Maldives may not have considered CSR disclosure is vital.

Secondly, [ 175 ] affirms that in the Maldives, employees are the major second most frequently target group of CSR activities. They suggest that companies provide medical expenses coverage, different training programs, recreational activities, and some financial assistance programs as well, and these things lead to workers' loyalty to boost by 52%. The single most striking observation that emerges from the study shows no significant relationship, and this is an alarming result. A likely reason is that the investment made by Maldivian public companies on human capital outweighs the FP measured during the study period. There can be a possibility that Maldivian public companies have taken substantial steps toward the development of the workforce in their organization. However, the organization may not have reaped the benefits in the form of financial gain.

Thirdly, CSR is considered as “ two-way street ” Tsavdaridou and Metaxas [ 183 ] that mutually benefits both (stakeholders and business) parties. Contrary to this line of reasoning [ 175 ] suggest that in the Maldives, CSR is perceived to be “ one-way street ” rather than “ two-way street .” Further, documented that in Maldives organization does not expect anything in return on CSR activities, and if the company expects anything in return, then it is considered as the outside realm of CSR initiatives. This might be because the Maldives is 100% Muslim country, this perception comes from the Islamic religion of almsgiving (Zakat or Sadaquath), which advocates donation to vulnerable people, and by helping poor people, we should not expect material benefit return in this world.

Fourthly, sometimes, the entrepreneur may not be able to reap the benefits of CSR initiatives due to a lack of awareness of CSR among the stakeholders. This line of thinking supported by [ 175 ] posit that in the Maldives one of the most significant barriers in implementing and institutionalizing CSR within business is due to lack of awareness among the public, and it noted that 50% of the people believe that in the Maldives the main barrier in implementing CSR initiatives is due to lack of awareness.

Relationship between diverse and FP (ROE, ROA and EPS)

Based on the findings of the study H11 and H12 were accepted, meaning that there is a significant relationship between CSR (diverse) and FP (ROA and EPS), but the results found are negative. This finding is in line with [ 6 , 103 ] posited that diversity leads to negative employee productivity and performance. As stated earlier, this study found a significant relationship between CSR (environment) and FP (ROA and EPS), but the results found are negative, and there can be several possible reasons for that.

Firstly, when there is a different ethnic group within the company leads the worker to indulge in disagreements that may not directly relate to their work; hence, it may lead to conflicts between the employees, and in the end, company productivity goes down. For example, the Maldivian worker and Sri Lankan worker may argue on the religious differences among them. In line with this thinking, [ 75 ] stated a deep level of divergences between the groups could lead to a negative impact on organizational performance. Furthermore, [ 127 ] suggests that interpersonal deviations arise between the employees may lead to a negative emotion that may detrimental to organizational productivity.

Secondly, the use of emigrant workers remains widespread due to a lack of skilled labor force [ 1 ]. According to [ 131 ], the number of emigrant workers has increased by 188% between, 2000 to 2011 and estimated that, on average, a 5% increase would be there in every alternative year. These numbers show alarming figures indicating the different nationals working in various companies in the Maldives. Hence, companies' workforce diversity can have a considerable impact on organizational performance. Most of the time, in Maldives expatriate workers, does the odd job in the construction industry Maldivian considers those workers as very inferior and discriminates their workers [ 151 ]. This might be the case in public companies; hence, if the employees discriminated, then it leads to unhappy work condition may result in the productivity of the companies. In the same vein, [ 187 ] posit if employees are not happy and if they are discriminated based on their cultural differences, it will lead to low morale in the working environment and dissatisfy and at the end it leads to negative performance and affects the productivity of the organization.

Thirdly, a diverse workforce leads to employee turnover and absenteeism to go up, which leads to lower productivity of the organizations [ 26 ]. Leonard and Levine [ 110 ] acknowledged if employees are isolated based on cultural differences, age or gender from coworkers may increase labor turnover. In line with this [ 198 ] conceive that diversity leads to negative dynamics such as stereotyping, cultural classes, and ethnocentrism, and these negative dynamics lead to employee turnover and absenteeism. This might be the case in public companies in the Maldives. Hence, if diversity is overlooked or not adequately handled by the top management, it may detract the productivity of the companies.

Based on the findings of this study, H10 was rejected, meaning that there is no significant relationship between CSR (diverse) and FP (ROE). Therefore, this finding is in line with scholars that argue on diversity, and organizational performance has no relation. For example, [ 6 , 103 , 126 ] found that ethnicity diversity has no significant relation with innovation within an organization.

Conversely there is a large volume of published studies describing that diversity leads to improve financial performance [ 9 , 115 ]. As stated earlier, this study found no significant relationship between CSR (diverse) and FP (ROE), and there can be several possible reasons for that.

Firstly, according to the corporate governance code (clause 1.6(a)(v)(vi)) of Maldives, all public company boards should have a 30% representation of women [ 7 ]. But the samples taken for this study except one company remaining five companies didn't strictly follow the corporate governance code accordingly. It found that BML board have 33% of female, STO has 14% of female, Dhirague has 14%, MTDC has 22% female, Amana Takaful have 0%, and MTCC has 0% female representation. According to [ 154 ] board, diversity is not just a simple " number game ." Having the right mix of gender diversity in the boardroom leads to better financial performance [ 115 ]. Therefore, it is important for public companies in the Maldives to follow corporate governance code thoroughly so that in the future, that may improve the financial position of the company. Though currently public companies not following the CG code may not lead any adverse implication but maybe in the future, when the investors get to know the importance of diversity in the board may punish the companies.

Secondly, if the female directors appointed as “ token ,” then it may not leads to a positive impact. According [ 94 ], the theory of “ tokenism ” if the group representation is less than 15%, then it is considered as appointed as “token.” If female directors appointed as “ token ,” then it may lead to negative/no significant impact on organization performance. In the context of Maldives, the average female board representation of the six-sample company is 13%. Therefore, it is safe to conclude that there is no significant statistical relationship between CSR (diversity) and FP (ROE) in the Maldivian plc context is due to “ tokenism .”

Thirdly, a report published by the Ministry of Environment indicated that lack of women in the decision-making level is a challenge that Maldives face in a time of advocacy of gender equality and empowerment [ 162 ]. In the same vein, the UNFPA Maldives bulletin indicated that only 25% of women work in the decision making level in the country. As stated earlier in the context of Maldives, the average female board representation of the six-sample company is 13%, one of the possible reasons for that low representation can be due to the " glass ceiling ." According to [ 50 ], the " glass ceiling " is a phenomenon where the promotion of certain people, especially women, doesn't go beyond a certain level in the hierarchy. In public companies, the highest top-ranking occupation considered as the board of directors' jobs, due to cultural thinking in the Maldives and the " glass ceiling " phenomena, sometimes, female employees do have difficulty climbing up in the leader of the hierarchy and be in the boardroom. Therefore, it is safe to conclude that there is no significant statistical relationship between CSR (diversity) and FP (ROE) in the Maldivian plc context is due to the " glass ceiling " phenomena.

Control variable (firm size)

Based on the findings of the study, H13-01 and H13-03 rejected, meaning control variable firm size is not a significant thing that affects organization CSR disclosure or FP. This result is consistent with [ 182 ] and Adeneye and Ahmed [ 2 ], and they posit that firm size cannot influence CSR or FP. Further, based on finding H13-02 accepted indicating firm size have a significant effect on ROA, this result consistent with [ 33 , 141 ].

The main objective of this study is to find out the relationship between CSR initiatives to the financial performance of the public companies in the Maldives.

The results of this research broadly classified into three broad spectrums that are ROA, ROE, and EPS with CSR. ROA, as a dependent variable, result shows there is a robust negative relationship between diversity and ROA, while the result did not show a significant correlation between community, environment, work, and ROA. ROE, as a DV result also shows there is a robust negative relationship between environment and ROE while the result did not show a significant correlation between community, diverse, work, and ROE. Besides, to check the effect of the control variable on ROE, the results indicated the size of the company is not statistically significant. Similarly, the relationship between size and the ROE of firms exhibits a negative correlation. The result further shows Community, Diverse, Environment, and Work did not show a significant relationship with ROE. EPS, as a DV, the result shows there is a robust negative relationship between diversity and EPS, while the result did not show a significant correlation between community, environment, work, and EPS. Furthermore, to check the effect of the control variable on EPS, the results indicated that the size of the company has an insignificant. Nevertheless, the relationship between size and the EPS of firms shows a positive relationship. The result further indicates diversity has a significant negative correlation with EPS as it was before the control variable added to the model. Lastly, Community, Environment, and Work did show an insignificant relationship with EPS.

There are several vital contribution this study made; firstly, the CSR research done in the developing countries was very limited especially in the context of Maldives, In doing so, the results of this study suggest that public companies in the Maldives are practicing CSR, and companies are reporting CSR initiatives in the annual report of the companies. Secondly, this study has examined the relevance of different management theories that are developed in the field of CSR and tries to identify the association between different variables that affect CSR theories. This study confirms the importance of stakeholders’ theory in understanding CSR in the Maldivian market. Thirdly, this research used panel data, that is widely been used in academia in order to check the relationship between CSR and FP [ 111 , 180 ]. Therefore, this study used improved data methods in identifying the association between CSR and FP and documented that there is statistical significance between the CSR and FP of public limited companies in the Maldives. Fourthly, this study is one of its kind that has explored, the relationship between CSR and FP of listed companies in the Maldives, therefore, this study contributes existing body of knowledge as a reservoir hence in future this research work can be reference materials for researchers and students who wants to explore this subject matters in the future.

The empirical outcomes suggested in this research should be considered in the light of some constraint because no research is without limitation; hence, this study also has several limitations due to the methodology adopted by this study. Firstly, the major limitation of this study is the “ CSR instrument ” adopted by this research. Secondly, the sample size used in this study is six, and the time horizon of the study is 5 years from 2014 and 2018 due to limited companies listed on the stock exchange, and the small number of samples size might be the reason for negative results of this research. Therefore, generalizability of this research finding might not be applicable to all companies in the Maldives. Thirdly, to assess the CSR disclosure by the public companies in the Maldives, this research used the company annual report using the content analysis and to convert the qualitative data to quantitative data, the dichotomous process has been used to calculate each company CSR disclosure under each specific criterion identified in CSR framework. Since the primary documents used in measuring CSR is an annual report; therefore, the finding of this research largely depends on the quality of information presented in the annual report. Fourthly, the primary dependent variable of this study was FP, and the proxies of FP included as ROE, ROA, and EPS. This financial ratio calculated from the financial statement; hence, the reliability of this finding largely depends on the “ true and fair ” values presented in the financial statement.

Several suggestions can be given for the future researcher in making a more judgmental decision in making this research more meaningful. First is developing a “ CSR instrument ” for local context and testing the relationship between CSR and FP. Secondly, it includes more samples and extending the study duration may give more meaningful results. Further, this study purely used annual report in identifying CSR disclosure, future researcher advisable to used website information and standalone CSR report can also use that may get more meaningful results. Thirdly, this study focuses only public listed company in Maldives stock exchange; the future researcher can look into both public and private company, that may give more conclusive information related to CSR, and it can augment the external validity of the finding of this study, and also can used other advanced econometric technique that analyzes the relationship between CSR and FP such as continuous wavelet transformation (CWT) method proposed by (Kenourgios, Drakonaki and Dimitriou). Fourthly, it can include more variables or other different variables in both CSR and FP measurement and check the association between CSR and FP can augment the external validity of the finding of this study. Furthermore, different other control variables such as R and D, institutional ownership, and leverage can be used. Therefore, future work can include these variables and check the association between CSR and FP.

Availability of data and materials

Abbreviations.

Corporate Social Responsibility

Financial Performance

Return on Assets

Return on Equity

Earnings Per Share

Ordinary least-squares

Fixed Effect Model

Random Effect Model

Maldives Transport and Contracting Company

Maldives Tourism Development Corporation

State Trading Organization

Bank of Maldives

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Publicly listed private equity (PE) refers to private equity firms and funds that are traded on public stock exchanges. It is a way for investors to gain exposure to private equity assets without directly investing in private equity funds. The largest listed private equity companies are private equity fund management firms (GPs), that is, firms that raise and manage traditional private equity partnership funds. Their shareholders have a claim on a share of the fee revenue and other income generated by those firms. Listed private equity may also refer to listed closed-end investment funds or publicly listed companies that make private equity investments using their balance sheet capital. Unlike traditional private equity funds which are required to return capital to investors (LPs) after 10–13 years, these firms and funds are not required to return investment capital to investors, and therefore their...

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Aziz, Nor Azah Abdul, Soon Y. Foong, Tze San Ong, Rosmila Senik, Hassan Attan, and Yusri Arshad. "Intensity of market competition, strategic orientation and adoption of green initiatives in Malaysian public listed companies." International Journal of Productivity and Performance Management 67, no. 8 (November 12, 2018): 1334–51. http://dx.doi.org/10.1108/ijppm-03-2017-0078.

Annuar, Hairul Azlan. "Malaysian evidence supporting theoretical integration of roles of non-executive directors." Asian Journal of Accounting Research 3, no. 1 (August 6, 2018): 2–14. http://dx.doi.org/10.1108/ajar-07-2018-0020.

Gorman, Louise, Theo Lynn, and Mark Mulgrew. "The influence of the newspaper media on the corporate governance practices of Irish listed PLCs." Corporate Ownership and Control 7, no. 3 (2010): 259–74. http://dx.doi.org/10.22495/cocv7i3c2p2.

Annuar, Hairul Azlan, and Hafiz Majdi Abdul Rashid. "An investigation of the control role and effectiveness of independent non-executive directors in Malaysian public listed companies." Managerial Auditing Journal 30, no. 6/7 (July 6, 2015): 582–609. http://dx.doi.org/10.1108/maj-09-2013-0936.

Ishak, Rokiah, and Mohd ‘Atef Md Yusof. "Corporate Performance, Corporate Governance and CEO Dismissal in Malaysia." GATR Global Journal of Business Social Sciences Review 1, no. 2 (April 11, 2013): 113–26. http://dx.doi.org/10.35609/gjbssr.2013.1.2(12).

Hasan, Md Shamimul, Normah Omar, and ABM Rashedul Hassan. "Financial health and management practices: a multi-year cross country analysis of PLCs." Journal of Financial Crime 25, no. 3 (July 2, 2018): 646–57. http://dx.doi.org/10.1108/jfc-01-2017-0002.

Noordin, Kamaruzaman, Mohd Rijal Muwazir @Muzakir, and Azian Madun. "The Commercialisation of Modern Islamic Insurance Providers: A Study of Takaful Business Frameworks in Malaysia." International Journal of Nusantara Islam 2, no. 1 (June 9, 2014): 1–13. http://dx.doi.org/10.15575/ijni.v2i1.44.

Fraihat, Baha Aldeen Mohammad Ahmad, and Behrang Samadi. "The effect of KM capabilities on the Performance of Jordanian Public Listed Companies." International Journal of Business and Social Research 7, no. 11 (November 14, 2017): 09. http://dx.doi.org/10.18533/ijbsr.v7i11.1077.

Mehmood, Khawaja Khalid. "Asset Growth and Profitability of PLCs in SAARC Economies." Journal of Accounting and Finance in Emerging Economies 3, no. 1 (June 30, 2017): 33–46. http://dx.doi.org/10.26710/jafee.v3i1.159.

Osemeke, Louis, Nobert Osemeke, and Robert O. Okere. "The role of board in corporate social responsibility: A normative compliance perspective." Corporate Ownership and Control 17, no. 4 (2020): 152–65. http://dx.doi.org/10.22495/cocv17i4art13.

Dissertations / Theses on the topic "Public limited companies (plcs)":

Ahlbin, Oskar, and Marcus Svensson. "Kommersialism, mer än bara ett fenomen : En studie av kommersialismen inom svenska herrelitföreningar och om den miljö de verkar i, i förhållande till yttre partners." Thesis, Linnéuniversitetet, Institutionen för idrottsvetenskap (ID), 2020. http://urn.kb.se/resolve?urn=urn:nbn:se:lnu:diva-96557.

Josué, Miguel Sapiro Vaz. "Determinans of the returns on equity of largest Portuguese public limited companies." Master's thesis, Instituto Superior de Economia e Gestão, 2015. http://hdl.handle.net/10400.5/10496.

Freudenberg, Brett David, and na. "Tax Transparent Companies: Striving for Tax Neutrality? A Legal International Comparative Study of Tax Transparent Companies and their Potential Application for Australian Closely Held Businesses." Griffith University. Department of Accounting, Finance and Economics, 2009. http://www4.gu.edu.au:8080/adt-root/public/adt-QGU20100615.094301.

Greil, Tatjana Barbara. "The West German capital market and the financing behaviour of public limited companies, 1948-1965 : a reassessment." Thesis, London School of Economics and Political Science (University of London), 2002. http://etheses.lse.ac.uk/2650/.

Xanthaki, Helen. "Secondary establishment of European Union public limited companies in France, Greece and Italy : breaches of European Community law and redress." Thesis, Durham University, 2000. http://etheses.dur.ac.uk/1202/.

Baosuwan, Kunthorn. "The study to determine customers preference of using claims system via the internet at National Insurance Company Limited, Thailand." CSUSB ScholarWorks, 2005. https://scholarworks.lib.csusb.edu/etd-project/2939.

Patrício, Sara Sofia dos Santos. "Os determinantes das mulheres no conselho : o caso das sociedades anónimas portuguesas." Master's thesis, Instituto Superior de Economia e Gestão, 2014. http://hdl.handle.net/10400.5/7854.

Zouridakis, Georgios. "The introduction of the derivative action into the Greek law on public limited companies as a means of shareholder protection : a comparative analysis of the British, German and Greek law." Thesis, University of Essex, 2016. http://repository.essex.ac.uk/17136/.

Oliveira, Joana Rola Carvalho de Veludo. "O regulamento interno do conselho de administração das sociedades abertas." Master's thesis, 2019. http://hdl.handle.net/10400.14/28516.

Brandão, João Marcelo Gomes. "Pessoas coletivas no órgão de administração : especificidades : (des)vantagens da sua designação no modelo clássico de governação das sociedades anónimas." Master's thesis, 2020. http://hdl.handle.net/10400.14/33681.

Books on the topic "Public limited companies (plcs)":

Thailand. Public Limited Companies Act, B. E. 2535 . [Bangkok]: Nititham Pub. House, 1993.

Great Britain. Parliament. House of Commons. Treasury Committee. Financial regulation of public limited companies: Sixth Report. London: Stationery Office, 2002.

Great Britain. Parliament. House of Commons. Treasury Committee. Financial regulation of public limited companies: Minutes of evidence Tuesday 25 June 2002. London: Stationery Office, 2002.

Great Britain. Parliament. House of Commons. Treasury Committee. Financial regulation of public limited companies: Minutes of evidence Tuesday 2 July 2002. London: Stationery Office, 2002.

Great Britain. Parliament. House of Commons. Treasury Committee. The financial regulation of Public Limited Companies: Sixth report of session 2001-02. London: Stationery Office, 2002.

Schiantarelli, Fabio. Debt maturity and firm performance: A panel study of Indian public limited companies . Washington, DC: World Bank, Policy Research Dept., Finance and Private Sector Development Division, 1997.

Kewangan, Malaysia Kementerian. Guidelines for the new issue of securities and the valuation of public limited companies. 4th ed. Kuala Lumpur: Ministry of Finance, Malaysia, 1989.

Kewangan, Malaysia Kementerian. Guidelines for the new issue of securities and the valuation of public limited companies. 3rd ed. Kuala Lumpur: Ministry of Finance, Malaysia, 1988.

Managers, Irish Association of Investment. Statement of best practice on the role and responsibilities of directors of public limited companies. [s.l.]: Irish Association of Investment Managers, 1992.

Dornseifer, Frank. Corporate business forms in Europe: A compendium of public and private limited companies in Europe . Berne: Staempfli, 2005.

Book chapters on the topic "Public limited companies (plcs)":

Yussof, Khairunnisa’, Yon Bahiah Wan Aris, and Nur Aina Abd Jalil. "Antecedents in Developing a Risk Culture in Public Listed Companies (PLCs): Introduction to Enterprise Risk Management (ERM)." In Proceedings of the 1st AAGBS International Conference on Business Management 2014 (AiCoBM 2014) , 201–8. Singapore: Springer Singapore, 2016. http://dx.doi.org/10.1007/978-981-287-426-9_18.

Ray, Subhasis. "CSR in Indian Public Sector Mining Companies: The Case of LCM Limited." In Social Responsibility, Entrepreneurship and the Common Good , 272–94. London: Palgrave Macmillan UK, 2012. http://dx.doi.org/10.1057/9780230354890_16.

Gazzini, Tarcisio. "Beyond Protection: The Role of the Home State in Modern Foreign Investment Law." In Public Actors in International Investment Law , 19–36. Cham: Springer International Publishing, 2021. http://dx.doi.org/10.1007/978-3-030-58916-5_2.

van Dijk, Frans. "Perceptions of Judicial Independence in European Countries." In Perceptions of the Independence of Judges in Europe , 29–51. Cham: Springer International Publishing, 2020. http://dx.doi.org/10.1007/978-3-030-63143-7_3.

Malberti, Corrado. "Disclosure through Minority and Individual Rights in Public Limited Liability Companies." In Transparency of Stock Corporations in Europe . Hart Publishing, 2019. http://dx.doi.org/10.5040/9781509925551.ch-002.

Hannigan, Brenda. "1. Formation, classification, and registration of companies." In Company Law , 3–19. Oxford University Press, 2021. http://dx.doi.org/10.1093/he/9780198848493.003.0001.

Moore, Imogen. "2. Companies and Corporate Personality." In Concentrate Questions and Answers Company Law , 4–32. Oxford University Press, 2020. http://dx.doi.org/10.1093/he/9780198856726.003.0002.

Hannigan, Brenda. "18. Informed shareholders and stakeholders—disclosure and the limited company." In Company Law , 393–430. Oxford University Press, 2021. http://dx.doi.org/10.1093/he/9780198848493.003.0018.

Kosmin, Leslie, and Catherine Roberts. "Commentary on the Companies Act 2006 Model Articles." In Company Meetings and Resolutions . Oxford University Press, 2020. http://dx.doi.org/10.1093/oso/9780198832744.003.0033.

Milosevic, Tijana. "Shaping Company Responsibility: Privatized Public Sphere." In Protecting Children Online? , 45–62. The MIT Press, 2018. http://dx.doi.org/10.7551/mitpress/9780262037099.003.0003.

Reports on the topic "Public limited companies (plcs)":

Wiecha, Jean L., and Mary K. Muth. Agreements Between Public Health Organizations and Food and Beverage Companies: Approaches to Improving Evaluation . RTI Press, January 2021. http://dx.doi.org/10.3768/rtipress.2021.op.0067.2101.

Inform Direct company secretarial software will ease the administrative burden of corporate life.

Advantages and disadvantages of a public limited company

Written by Johnathan Korchak

Published in Company formation on April 17, 2024

7 comments | Tags: business types , plc

A great number of businesses choose to incorporate as a company limited by shares. That contrasts with other forms of business, such as the sole trader , partnership , limited liability partnership (LLP) or company limited by guarantee .

Most companies limited by shares are set up as private companies. However, in this article we look at the advantages and disadvantages of a public limited company . As well as those forming new companies, a proper evaluation of the advantages and disadvantages of a public limited company will be needed for an existing private limited company considering converting to a plc.

As ever, if you’re at all unsure about the best course of action, we’d strongly suggest you speak to your solicitor or accountant. They can give you detailed information and advice that takes account of your personal circumstances.

Need a little help managing your plc?

An important part of managing an unlisted plc in the UK is keeping its statutory books and filings up to date. Inform Direct is the perfect tool to help make this task a whole lot easier , meaning you can focus more on running your business.

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Public limited company advantages

As a limited company, a plc shares the advantages of a limited company with its private counterpart. But there are also specific features of a public limited company that provide unique advantages:

1 Raising capital through public issue of shares

The most obvious advantage of being a public limited company is the ability to raise share capital. The widest opportunities to market shares are available when the company is listed on a recognised exchange.

With certain restrictions, a public limited company can sell its shares to the public and anyone is able to invest their money. Therefore, the capital that can be raised is typically much larger than a private limited company.

It’s also possible that having stock listed on an exchange could attract investment from hedge funds, mutual funds and other institutional traders.

2 Widening the shareholder base and spreading risk

Offering shares to the public gives the opportunity to spread the risk of company ownership among a large number of shareholders . This may allow early investors in the company to sell some of their own shares at a profit while still retaining a substantial stake in the company.

Obtaining capital from a wide range of investors has some advantages over relying on one or two ‘angel investors’, as many private companies will choose to do to facilitate growth. An angel investor may provide a large amount of capital and expertise. However, the founders may not be comfortable with the level of influence over the company’s direction that the angel will often expect.

3 Other finance opportunities

As well as share capital, a public limited company will often find itself in a better position when looking at other potential sources of finance.

There are additional demands upon public limited companies. Those companies maintaining a stock exchange listing will face additional requirements. These additional compliance obligations can help to improve a company’s creditworthiness when issuing corporate debt. That will in turn reduce the return the company needs to offer investors.

Banks and other financial institutions may be more willing to extend finance to a public limited company, particularly one that is listed. The company could also be in a better position to negotiate favourable interest rates and repayment terms on loans.

4 Growth and expansion opportunities

The value of being able to raise finance is in how it can be employed to serve the business. By virtue of the additional finance that may be available to a public company, it can be in an better position to:

• Pursue new projects, new products or new markets
• Make capital expenditure to support and enhance the business
• Make acquisitions (whether in cash or by offering shares to the shareholders of the target business)
• Fund research and development
• Pay off existing debt (or replace existing debt with new debt on better terms)
• Grow organically

5 Prestigious profile and confidence

Whether deserved or not, having ‘plc’ at the end of a company name can add standing and prestige. There is a sense of status about a public limited company that its private company counterpart just doesn’t quite have. This can influence how the business is viewed. While often more imagined than real, this perception of being more established, larger or more powerful can affect the behaviour of customers, suppliers and employees.

More people are likely to be aware of the company if it is public. That’s particularly true if it’s listed on a stock exchange. In that case, it’s more likely to receive attention from the media and investment professionals. This is effectively free publicity, meaning more people will recognise the company and its products or services. Better brand recognition can lead to more sales. It may also make you more visible to valuable potential business partners.

Credibility and confidence are reinforced by:

• Operating under a stricter legal regime than private companies in many areas
• Higher share capital requirements
• Greater transparency (for example, in the required form of accounts)
• For listed companies, the indirect endorsement of having their shares listed on a recognised exchange

Again, these factors can affect the behaviour of (potential) shareholders, customers and business partners.

6 Transferability of shares

The shares of a public limited company are more easily transferable than those in the private equivalent. This means shareholders benefit from liquidity. If shares are quoted on a stock exchange, shareholders and potential shareholders will generally find it easier to transfer shares in the company. However, the market still relies on willing purchasers and sellers being available and trading in many public companies is still infrequent.

The fact the shareholders are less bound to remain with the company can give them comfort. This may help the company by making people more willing to invest in the first place.

Additional restrictions on transferability of shares often apply in private companies. Without these, it’s also easier to deal with situations like a shareholder’s death , allowing shares to be transmitted in line with the terms of any will.

7 Exit Strategy

Going public can enhance the options for the founders to exit the business at some point in the future, if they wish to do so. Both higher transferability of shares and the increased visibility of the business and its performance may increase the chances of bid interest from potential suitors.

Public limited company disadvantages

There are some important disadvantages of a public limited company, compared to a private limited company. These public limited company disadvantages include:

1 Additional regulatory requirements

To help protect shareholders, the legal and regulatory requirements for a public limited company are more onerous than for private limited companies. For example, additional restrictions include:

• A trading certificate must be obtained from Companies House before the company can trade. There is no such requirement for a private company
• The need to have at least two directors. Only one is required in a private company
• More onerous rules apply concerning loans to directors
• A suitably qualified company secretary must be appointed. This appointment is optional for a private company
• There are higher transparency requirements for company accounts. They must also be produced within six months of the end of the financial year. For private companies, nine months are available.
• AGMs must be held, whereas in a private company decisions can more often be made by resolution
• There are various additional restrictions on the company’s share capital and limits on pre-emption rights and dividends

If the company’s shares are listed, the company will also need to follow the rules of the market. These rules, particularly those to be listed on the London Stock Exchange, are demanding.

Understanding and applying these additional rules will consume time and effort that cannot then be dedicated to growing the business. Appointing staff or advisers – including the required company secretary – will help but come at a cost.

2 Higher levels of transparency required

Limited companies, whether public or private, have more of their details in the public domain, available via Companies House, than other business types. But the required level of transparency is much higher for public companies.

Public limited companies will need to have their accounts audited. They are also generally unable to file abbreviated accounts, whereas smaller private companies can often do so. The fuller form of accounts means a public limited company has to disclose more detailed data about the business and its performance. This information which is then available to anyone who wishes to access it, including competitors.

The accounts of public limited companies are often scrutinised more by analysts. They are more likely to receive media commentary, not all of which may be positive or welcome.

3 Ownership and control issues

With a private limited company, the shareholders will typically be people known to the directors or founders. A private company will often be selective over who to admit as a shareholder. This can help to ensure new shareholders support an existing vision and plans for the business. The use of pre-emption rights can allow existing shareholders to maintain control over the company when a new share issue is undertaken, a shareholder dies or wants to transfer their shares.

With a public limited company, it’s much harder to control who is a shareholder of the company, and who the directors are ultimately accountable to. There is therefore a possibility that the original owners or directors can lose control of the direction of the company. Shareholder disputes may be difficult to manage. The founds may find themselves investing a lot more time managing shareholder expectations.

Institutional shareholders can wield particularly high levels of influence. They will often expect consultation and adoption of particular policies or standards in return for their investment.

4 More vulnerable to takeovers

At worst, a company can become vulnerable to a hostile takeover if a majority of shareholders agree to a bid. With shares being freely transferable, a potential bidder can build up a shareholding in advance of launching a bid attempt.

5 Short-termism

Where a public limited company is listed, there can be added pressure imposed by the market. The company’s share price represents the value of the company as viewed by the market. Investors will usually expect a healthy return. As well as dividends paid from profits, there will be a desire for the share price to increase.

This level of emphasis on the share price can cause the directors to focus almost exclusively on short-term results. They may therefore miss strategic opportunities or threats, thereby not achieving the best for the business in the long-term. In private companies, there is usually less focus on the current share price, even to the extent one is available.

6 Initial financial commitment is higher

The minimum financial commitment is higher for a public limited company than for a private limited company. In order to trade, the plc must start with at least £50,000 of nominal share capital. At least 25% of this must be paid up . That means at least £12,500 must be committed to the business, whereas in a private company a single share of (say) £0.01 could be allotted – and not even paid for on issue!

Associated costs of company formation may also be higher, especially if the company’s requirements are complex. If the company’s shares are to be listed on an exchange, it will typically pay legal and investment professionals to advise and manage the listing process. There will be other costs associated with obtaining a listing.

All companies and LLPs are required to maintain up to date statutory records . Inform Direct is the perfect tool to keep your unlisted public limited company's records up to date .

A previous version of this article was originally published on 25 November 2016.

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What Is a Public Company?

• How It Works
• Disadvantages

Special Considerations

The bottom line.

• Investing Basics

Publicly Traded Company: Definition, How It Works, and Examples

Investopedia / Jake Shi

A public company is a corporation whose shareholders have a claim to part of the company's assets and profits. It's also called a publicly traded company. This type of company is called a public limited company (PLC) in the United Kingdom.

• Ownership of a public company is distributed among general public shareholders through the free trade of shares of stock on stock exchanges or over-the-counter (OTC) markets.

Key Takeaways

• A public company, also called a publicly traded company, is a corporation whose shareholders have a claim to part of the company's assets and profits.
• A public company is required to disclose its financial and business information regularly to the public.
• It must also report its securities trading on public exchanges.

A public company is required to disclose its financial and business information regularly to the public in addition to its securities trading on public exchanges. A company is considered a public company by the U.S. Securities and Exchange Commission (SEC) if it has public reporting requirements.

Understanding a Public Company

Most public companies were once private companies that were owned by their founders, management, or a group of private investors. Private companies don't have any public reporting requirements. A company is required to conform to public reporting requirements when it meets any of certain criteria:

• They sell securities in an initial public offering (IPO).
• Their investor base reaches a certain size.
• They voluntarily register with the SEC.

An IPO is the process by which a private company begins to offer shares to the public in a new stock issuance. A company is considered to be private before completing an IPO. Issuing shares to the public through an IPO is very important for a company because it provides it with a source of capital to fund growth.

Examples of public companies include Chevron Corporation, McDonald's, and The Procter & Gamble Company.

A company must meet certain requirements to complete an IPO, both regulations set forth by the regulators of the stock exchange where it hopes to list its shares and those set forth by the SEC. A company usually hires an investment bank to market its IPO, determine the price of its shares, and set the date of its stock issuance.

A company typically offers its current private investors share premiums when it undergoes an IPO as a way of rewarding them for their prior, private investment in the company.

The U.S. Securities and Exchange Commission (SEC) states that any company in the U.S. with 2,000 or more shareholders or 500 or more shareholders that are not accredited investors must register with the SEC as a public company and adhere to its reporting standards and regulations.

Advantages of Public Companies

Public companies have certain advantages over private companies. They have access to the financial markets and can raise money for expansion and other projects by selling stock or bonds. A stock is a security that represents a fraction of ownership in a  corporation . 

Selling stocks allows the founders or upper management of a company to liquidate some of their equity in the company. A corporate bond is a type of loan issued by a company to raise capital. An investor who purchases a corporate bond is effectively lending money to the corporation in return for a series of interest payments. These bonds may also actively trade on the secondary market in some cases.

There's some clout attached to being a publicly traded company and having your stocks trade on a major market like the New York Stock Exchange because a company must have achieved a certain level of operational and financial size and success to transition to being publicly traded.

Disadvantages of Public Companies

The ability to access the public capital markets also comes with increased regulatory scrutiny, administrative and financial reporting obligations, and  corporate governance  bylaws with which public companies must comply. This results in less control for the majority owners and founders of the corporation. There are also substantial costs to conducting an IPO, as well as the ongoing legal, accounting, and marketing costs of maintaining a public company.

Public companies must meet mandatory reporting standards regulated by government entities and they must file reports with the SEC on an ongoing basis. The SEC sets stringent reporting requirements. These include the public disclosure of financial statements and an annual financial report called a Form 10-K that gives a comprehensive summary of a company's financial performance.

Companies must also file quarterly financial reports called Forms 10-Q and current reports on Form 8-K to report when certain events occur. These events include the election of new directors or the completion of an acquisition.

These reporting requirements were established by the Sarbanes-Oxley Act , a set of reforms intended to prevent fraudulent reporting. Qualified shareholders are also entitled to specific documents and notifications about the corporation's business activities.

A company must answer to its shareholders when it's public. Shareholders elect a board of directors who oversee the company's operations on their behalf. Certain activities such as mergers and acquisitions and some corporate structure changes and amendments must be brought up for shareholder approval. This effectively means that shareholders can control many of the company's decisions.

There may be some situations where a public company no longer wants to operate within the business model required of a public company. There are many reasons why a public company may decide to go private .

It may decide that it doesn't want to have to comply with the costly and time-consuming regulatory requirements of being a public company, or it might want to free up its resources to devote to research and development (R&D), capital expenditures, and funding pension plans for its employees.

A "take private" transaction is necessary when a company transitions to private. A private equity firm or a consortium of private equity firms either purchases or acquires all the outstanding stock of the publicly-listed company. This sometimes requires the private equity firm to secure additional financing from an investment bank or another type of lender that can provide enough loans to help finance the deal.

The company will be delisted from its associated stock exchanges and will return to private operations when the purchase of all the outstanding shares is complete.

Is an Exchange-Traded Fund (ETF) a Publicly Traded Company?

An ETF is similar to a publicly traded company in that its shares are traded on stock exchanges and the market determines their value. You can buy ETF shares just as you would buy shares of a publicly traded company through a brokerage account or a broker.

What Is a Reporting Company?

Reporting company is essentially another name for a public company. These companies must meet the same reporting requirements with the SEC as public companies. A reporting company does not necessarily have to undergo an IPO, however. It can register its class of securities with the SEC instead.

What Is a Beneficial Owner?

A beneficial owner is someone who controls or owns 25% or more of a reporting or public company and who has significant control over the company. Companies must report their beneficial owners and provide certain information about them.

You probably own stock in a public company if you've invested in a mutual fund or a pension plan because many plans and funds make use of this type of investment. You can invest directly in such a company as well if you choose to do so. In either case, you and the other shareholders have an ownership stake in the company proportional to the amount of stock you've purchased.

U.S. Securities and Exchange Commission. " Public Companies ."

Yahoo! " 50 Biggest Public Companies in the World ."

U.S. Securities and Exchange Commission. " Exchange Act Reporting and Registration ."

Investment Company Institute. " ETF Basics and Structure: FAQs ."

U.S. Securities and Exchange Commission. " What Does It Mean to Be a Public Company? "

Financial Crimes Enforcement Network. " Beneficial Ownership Information Reporting Rule Fact Sheet ."

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Public Limited Company: Definition, Features, Advantages, Disadvantages

A public limited company is a voluntary association of members that are incorporated and, therefore has a separate legal existence and the liability of whose members is limited.

Public limited companies are listed on the stock exchange where it’s share/stocks are traded publicly.

Its main features are;

• The company has separate legal existence apart from its members who compose it.
• Its formation, working and it’s winding up all its activities are strictly governed by rules, laws, and regulations.
• A company must have a minimum of seven members but there is no limit as regards the maximum number.
• The company collects Its capital by the sale of its shares and those who buy the shares are called the members. The amount so collected is called the share capital.
• The shares of a company are freely transferable and that too without the prior consent of other shareholders or subsequent notice to the company.
• The liability of a member of a company is limited to the face value of the shares he owns. Once he has paid the whole of the face value, he has no obligation to contribute anything to pay off the creditors of the company.
• The shareholders of a company do not have the right to participate in the day-to-day management of the business of a company. This ensures the separation of ownership from management. The power of decision making in a company is vested in the Board of Directors, and all policy decisions are taken at the Board level by the majority rule. This ensures the unity of direction in management.

As a company is an independent legal person , its existence is not affected by the death, retirement, or insolvency of any of its shareholders.

Advantages of Public Limited Company

A public limited company is a form of business organization that operates as a separate legal entity from its owners. It is formed and owned by shareholders.

Shares of a public limited company are listed and traded at a stock exchange market freely. Shareholders of a public limited company are limited to potentially lose only the amount they have paid for the shares they own.

So, some advantages of a public limited company are;

Led by Board of Directors

Limited liability, number of members, transferable shares, financial privacy, large capital.

Public limited companies are headed by a board of directors. The composition of the board of directors is set out in the company’s articles of association.

Normally it comprises a minimum number of two members and a maximum of 12.

These are elected from the shareholders by the shareholders during the annual general meeting. They act as the representatives of the shareholders in the management of the company.

Shareholder liability for the losses of the company is limited to their share contribution only. This is what makes it a separate legal entity from its shareholders.

The business can be sued on its own and not involve its shareholders. The company does not belong to any person since one person can own only a part of it.

A public limited company has a minimum number of seven shareholders or members and a limitless number of members. It can have as many shareholders as its share capital can accommodate.

Shares of a public limited company are bought and sold in a stock exchange market. They are freely transferable between its members and people trading in the stock exchange.

A public limited company is not affected by the death of one of its shareholders, but her shares are transferred to the next of kin and the company continues to run its business as usual.

In the case of a director’s death, an election is held to replace the deceased director.

Public limited companies are strictly regulated and are required by law to publish their complete financial statements annually .

This ensures that they reveal their true financial position to their owners and potential investors so that they can determine the true worth of its shares.

Public limited companies enjoy an increased ability to raise capital since they can issue shares to the public through the stock market.

They can also raise additional capital by Issuing debentures and bonds through the same market from the public. Debentures and bonds are unsecured debts Issued to a company on the strength of its integrity and financial performance.

Disadvantages of a Public Limited Company

A Public Limited Company (PLC) means, first, that the firm is parceled out into shares and sold “publicly” on any or the entire globe’s stock exchanges.

Secondly, it means that those who invest in the firm are protected from extreme loss if the company fails.

This is called “limited liability.” This means that if one invests in a firm that fails, only that investment money can be claimed by the firm’s creditors.

More abstractly, “limited” means that only the existing assets of the firm can be seized for the payment of a debt.

So, some disadvantages of a public limited company are;

• High Costs.
• Public Books.
• Greedy Shareholders.
• Slow Decisions.

A Public Limited Company is normally a complex thing to start. The firm banker (or “underwriter”) then offers the initial shares to the public (and keeps a substantial commission).

Often, the costs of setting up a public firm and Initial Public Offering (IPO) can run into hundreds of thousands of dollars.

Public Books

The term “public” here is to be taken literally. Once a firm goes public, the firm is open to public inspection. The financial books and records of the firm are open to anyone, allowing the competition to see precisely how much profit or loss the firm is experiencing.

Greedy Shareholders

Those who buy shares have no particular interest in the firm except in that it makes a quick buck.

Most companies, however, have an interest in laying out a long­term growth plan that takes patience and planning It is not often many shareholders see it this way.

Since the company is now “public,” anyone can buy up shares, and there is no limit as to how many shares one can buy.

Under certain circumstances, hostile investors might buy up a large amount of stock, giving them a strong voice on the board of dimeters.

In this case, a firm that was built up by one group (or poison) can now be taken over by others since the firm has gone public

Going “public” means a certain lack of control by the founders of the firm. In some cases, the firm can be controlled by a board of directors who do not necessarily have the time for hands-on business management.

Therefore, ownership can be separated from control. If this is the case, then those who control the business do not own it and do not see a profit. This is not an incentive (necessarily) to rational management.

Slow Decisions

If the company is public, it must have a board of directors representing the main and most powerful stockholders.

This means, in turn, that major decisions must go through the board, with debates and voting. In reality, this entails that decisions will be slow and often painful. Sometimes, they might not be made at all.

What is the Difference between Private and Public Limited Company?

The main difference between a private and public company is that public company is allowed to raise capital by selling shares on the stock exchange, where private limiteds are not allowed to publicly traded stock.

Even though both private and public limited companies types are registered and incorporated under the same Company Act.

Common differences between a private and public limited company are;

Following are the main distinction between a public company and a private company:-

Minimum number of members

The minimum number of members required to form a private company is 2 , whereas a Public Company requires at least 7 members.

Maximum number of members

The maximum number of members in a Private Company is restricted to 50; there is no restriction of a maximum number of members in a Public Company.

Transferability of shares

There is a complete restriction on the transferability of the shares of a private Company through its Articles of Association, whereas there is no restriction on the transferability of the shares of a public company

4 Issue of Prospectus

A Private Company is prohibited from inviting the public for the subscription of its shares, i.e. a Private Company cannot issue Prospectus, whereas a Public Company is free to invite public for subscription i.e., a Public Company can issue a Prospectus.

Number of Directors

A Private Company may have 2 directors to manage the affairs of the company, whereas a Public. A company must have at least 3 directors.

Consent of the directors

There is no need to give the consent by the directors of a Private Company, whereas the Directors of a Public Company must have a file with the Registrar consent to act as Director of the company.

Qualification shares

The Directors of a Private Company need not sign an undertaking to acquire the qualification shares, whereas the Directors of a Public Company are required to sign an undertaking to acquire the qualification shares of the public Company.

Commencement of Business

A Private Company can commence its business immediately after its incorporation, whereas a Private Company cannot start its business until a Certificate to commencement of business is issued to it.

Shares Warrants

A Private Company cannot issue Share Warrants against its fully paid shares, whereas a Private Company can issue Share Warrants against its fully paid-up shares.

Further issue of shares

A Private Company need not offer the further issue of shares to its existing shareholders, whereas a Public Company has to offer the further issue of shares to its existing shareholders as right shares.

Further issues of shares can only be an offer to the general public with the approval of the existing shareholders in the general meeting of the shareholders only.

Statutory meeting

A Private Company has no obligation to call the Statutory Meeting of the member, whereas Public Company must call its statutory Meeting and file Statutory Report with the Register of Companies.

The quorum in the case of a Private Company is 2 members present personally, whereas in the case of a Public Company 5 members must be present personally to constitute a quorum.

However, the Articles of Association may provide and several members more than the required under the Act.

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Advantages of Public Limited Company Essay

Introduction, bt group plc, advantages of public limited companies, increase in financial capital, increase in market share, risk reduction, reference list.

Public limited companies refer to companies which are limited by shares. In United Kingdom, they are abbreviated as and PLC while in United States as LLC and they are often listed in a country’s stock exchange with the exception of certain public companies that are incorporated under special legislation are exempted by law from bearing such abbreviations. Corporations that can be transformed into plc in the UK include private limited as well as unlimited ones, which have share capital. However, unlimited companies without share capital cannot be registered as public limited companies.

The process of registration involves passing of a special resolution and filling in an application form to the company register. In United Kingdom, it is not compulsory for public limited companies to offer their shares to the public. However, most of the firms prefer to do so through the (London) Stock Exchange and ‘Alternative Investment Market.’ Upon registration as a public limited company, the company is required to adjust its memorandum to indicate that it is a limited company and to further increase its share capital to a value exceeding five hundred thousand pounds as per the statutory requirement. Its new memorandum and articles of association should conform to the requirements of a public limited company.

BT Group plc is a public limited company based in London, United Kingdom. It provides telecommunication services to over one hundred and seventy countries across the globe. Its shares are listed in both the London Stock exchange and New York stock Exchange. The company, which was initially owned by the British government, was privatized in 1982 when the government issued out 51% of the shares to private investors. In 1984, the company was transformed into a public limited company with more than 50% of its shares being sold out to the public (BT Group 2011).

This move positively impacted on the overall performance of the organization. The plc was able to compete effectively in UK and the rest of the world which enabled it to expand its operations globally. Further the company gained increased commercial freedom which enabled it to enter into new strategic ventures and to further enhance its operations. In the early 90s, the government sold 46.7% of its remaining shares and in 1993 the government further sold its remaining shares which introduced over seven hundred thousand share holders in the market (BT Group 2011).

The company’s transformation into a public limited company is associated with numerous benefits that are also evident in other public limited companies across the world. In addition to raising money for the treasury, the company benefited by acquiring new equity capital, increased value and market share and enhanced ability to obtain funding necessary to expand its operations as discussed below.

A company’s initial public offer (IPO) refers to the first sale of share to the public by a company (Brough 2005). Companies launch IPOS to raise additional capital which can be used to finance expansion plans and other projects within the organization. Through the initial public offer, BT Group was able to generate public awareness which stemmed from extensive marketing of the company to investors. Through the initial public offer, the company was able to increase its wealth and also generated money for the treasury. This was possible without necessarily dividing authority as in the case of business forms such as partnership.

The move by a company to issue its shares to the public allows such companies to raise additional capital which finances various corporate operational processes. This funding is important in facilitating mergers and acquisitions, enhancing research and development and expansion efforts of the company (Siegel & Shim 2008). This is evident in BT Group which after transforming into a public limited company was able to merge with MCI Communication Corporation with which it launched concert communications services which enhanced global communication service provision.

Shares of a public limited company are traded in the stock exchange. Since the shares traded have an assigned market value, they can easily be resold to provide liquidity. This enables the company to provide its employees with stock incentive packages and the investors with an opportunity to earn income from company shares (Brough 2005). Through the share market, BT Group plc value can be easily assessed which facilitates in cases where the company is seeking to acquire or merge with companies such as MCI and also helps the investors to be aware of the present value of the shares. Investors not only benefit from the potential increase in the value of stock, but also from the liquidity of publicly held stock which can be easily changed into cash.

Initial public offer is often associated with increased public awareness of the company due to its ability to generate publicity (Bhattcharya 2004). To transmit information to potential investors, the company often engages in extensive marketing and publicity of the IPO which in turn acts as a marketing tool that influences a new group of potential consumers to the company’s products. This is evident in the case of BT Group where the company managed to launch global services after going public.

Public limited companies have limited liability which means that the shareholders are liable to debt up to the amount of shares that they hold in the company (Craig & Campbell 2005). This means that if for instance BT Group was declared bankrupt, its shareholders would only lose what they have invested in the company unlike the case of unlimited companies or sole proprietorship where owners risk losing their personal assets. Other advantages associated with public limited companies such as BT Group include easier financing, economies of scale, specialization, and monopoly power.

However, despite the advantages associated with a company going public, such companies often face various challenges that are worth noting. The need for increased disclosure to the stakeholders which requires constant and periodic financial reporting may lead to additional costs (Chandratre 2009). There are also numerous rules and regulations governing such companies which are closely monitored by regulating authorities.

The costs associated with compliance to rules and regulations are substantially high and may result in financial strain on some companies. In addition the public limited companies are often faced by numerous pressures emanating from the market which shifts focus from achievement of long term goals to short term goals. Therefore before a company decides to go public, it should conduct a critical analysis of the situation and assess all the potential advantages and disadvantages that are likely to arise in order to determine whether such a move is in the best interests of the company.

Bhattcharya, H. 2004. Working Capital Management: Strategies and Techniques. London, PHI Learning Pvt Ltd.

Brough, H. G., 2005. Private Limited Companies: Formation and Management . London, Sweet & Maxwell.

BT Group, 2011. Companies’ Official Website , BT plc. Web.

Chandratre ,K.R. 2009. All about Private Limited Companies . London, Bharat Law House Pvt. Ltd.

Craig, T., & Campbell, J, D., 2005. Organization and the business environment , UK: Butterworth-Heinemann.

Siegel, J. G., Shim, K. J., 2008. Financial Management . London, Barron’s Educational Series.

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IvyPanda. (2022, March 26). Advantages of Public Limited Company. https://ivypanda.com/essays/advantages-of-public-limited-company/

"Advantages of Public Limited Company." IvyPanda , 26 Mar. 2022, ivypanda.com/essays/advantages-of-public-limited-company/.

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IvyPanda . 2022. "Advantages of Public Limited Company." March 26, 2022. https://ivypanda.com/essays/advantages-of-public-limited-company/.

1. IvyPanda . "Advantages of Public Limited Company." March 26, 2022. https://ivypanda.com/essays/advantages-of-public-limited-company/.

Bibliography

IvyPanda . "Advantages of Public Limited Company." March 26, 2022. https://ivypanda.com/essays/advantages-of-public-limited-company/.

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• 15 April 2024
• Correction 22 April 2024

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Dalmeet Singh Chawla is a freelance science journalist based in London.

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When David Autor co-wrote a paper on how computerization affects job skill demands more than 20 years ago, a journal took 18 months to consider it — only to reject it after review. He went on to submit it to The Quarterly Journal of Economics , which eventually published the work 1 in November 2003.

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doi: https://doi.org/10.1038/d41586-024-00660-1

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Correction 22 April 2024 : The original version of this story credited Sage, rather than Overton, as the source of the policy papers’ citation data. Sage’s location has also been updated.

Autor, D. H., Levy, F. & Murnane, R. J. Q. J. Econ. 118 , 1279–1333 (2003).

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Costanza, R. et al. Nature 387 , 253–260 (1997).

Willett, W. et al. Lancet 393 , 447–492 (2019).

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AI Index Report

Welcome to the seventh edition of the AI Index report. The 2024 Index is our most comprehensive to date and arrives at an important moment when AI’s influence on society has never been more pronounced. This year, we have broadened our scope to more extensively cover essential trends such as technical advancements in AI, public perceptions of the technology, and the geopolitical dynamics surrounding its development. Featuring more original data than ever before, this edition introduces new estimates on AI training costs, detailed analyses of the responsible AI landscape, and an entirely new chapter dedicated to AI’s impact on science and medicine.

Read the 2024 AI Index Report

The AI Index report tracks, collates, distills, and visualizes data related to artificial intelligence (AI). Our mission is to provide unbiased, rigorously vetted, broadly sourced data in order for policymakers, researchers, executives, journalists, and the general public to develop a more thorough and nuanced understanding of the complex field of AI.

The AI Index is recognized globally as one of the most credible and authoritative sources for data and insights on artificial intelligence. Previous editions have been cited in major newspapers, including the The New York Times, Bloomberg, and The Guardian, have amassed hundreds of academic citations, and been referenced by high-level policymakers in the United States, the United Kingdom, and the European Union, among other places. This year’s edition surpasses all previous ones in size, scale, and scope, reflecting the growing significance that AI is coming to hold in all of our lives.

Steering Committee Co-Directors

Ray Perrault

Steering committee members.

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Katrina Ligett

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James Manyika

Juan Carlos Niebles

Vanessa Parli

Yoav Shoham

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Staff members.

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Letter from the co-directors.

A decade ago, the best AI systems in the world were unable to classify objects in images at a human level. AI struggled with language comprehension and could not solve math problems. Today, AI systems routinely exceed human performance on standard benchmarks.

Progress accelerated in 2023. New state-of-the-art systems like GPT-4, Gemini, and Claude 3 are impressively multimodal: They can generate fluent text in dozens of languages, process audio, and even explain memes. As AI has improved, it has increasingly forced its way into our lives. Companies are racing to build AI-based products, and AI is increasingly being used by the general public. But current AI technology still has significant problems. It cannot reliably deal with facts, perform complex reasoning, or explain its conclusions.

AI faces two interrelated futures. First, technology continues to improve and is increasingly used, having major consequences for productivity and employment. It can be put to both good and bad uses. In the second future, the adoption of AI is constrained by the limitations of the technology. Regardless of which future unfolds, governments are increasingly concerned. They are stepping in to encourage the upside, such as funding university R&D and incentivizing private investment. Governments are also aiming to manage the potential downsides, such as impacts on employment, privacy concerns, misinformation, and intellectual property rights.

As AI rapidly evolves, the AI Index aims to help the AI community, policymakers, business leaders, journalists, and the general public navigate this complex landscape. It provides ongoing, objective snapshots tracking several key areas: technical progress in AI capabilities, the community and investments driving AI development and deployment, public opinion on current and potential future impacts, and policy measures taken to stimulate AI innovation while managing its risks and challenges. By comprehensively monitoring the AI ecosystem, the Index serves as an important resource for understanding this transformative technological force.

On the technical front, this year’s AI Index reports that the number of new large language models released worldwide in 2023 doubled over the previous year. Two-thirds were open-source, but the highest-performing models came from industry players with closed systems. Gemini Ultra became the first LLM to reach human-level performance on the Massive Multitask Language Understanding (MMLU) benchmark; performance on the benchmark has improved by 15 percentage points since last year. Additionally, GPT-4 achieved an impressive 0.97 mean win rate score on the comprehensive Holistic Evaluation of Language Models (HELM) benchmark, which includes MMLU among other evaluations.

Although global private investment in AI decreased for the second consecutive year, investment in generative AI skyrocketed. More Fortune 500 earnings calls mentioned AI than ever before, and new studies show that AI tangibly boosts worker productivity. On the policymaking front, global mentions of AI in legislative proceedings have never been higher. U.S. regulators passed more AI-related regulations in 2023 than ever before. Still, many expressed concerns about AI’s ability to generate deepfakes and impact elections. The public became more aware of AI, and studies suggest that they responded with nervousness.

Ray Perrault Co-director, AI Index

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Rating Report

Global Green Chemicals Public Company Limited

Wed 24 Apr, 2024 - 1:33 AM ET

Fitch Ratings (Thailand) revised the Outlook on Global Green Chemicals Public Company Limited's (GGC) National Long-Term Rating to Negative, from Stable, due to the risk that the company's leverage may be higher than is commensurate for the 'A-(tha)' rating. GGC's EBITDA net leverage may remain above 3.0x – the level above which we may take negative rating action – in the next two years if its earnings recovery is slower than we expected or if the company undertakes any large investments. Earnings weakened significantly in the past 12 months due to weak product spreads, large stock losses and high maintenance costs. Stock losses and maintenance costs are one-off, but we also expect product spreads to remain soft in the next 12-18 months on weak demand, limiting EBITDA recovery. GGC's rating incorporates a two-notch uplift from its Standalone Credit Profile (SCP), driven by support we deem as available from its stronger 72%-parent PTT Global Chemical Public Company Limited (PTTGC; AA(tha)/Negative, SCP: a+(tha)). GGC's SCP reflects its small operating scale, limited product diversification and the cyclical demand for its products. This is counterbalanced by its position as the leading biofuel and oleochemical producer in Thailand, with competitive production cost and a degree of demand certainty with the PTT group as its main off-taker.