Stock exchanges also help companies raise money so that they can grow their businesses. When a company first decides to list its shares on a stock exchange and sell stock to the public in an initial public offering, it typically uses the capital it receives from interested investors to expand its operations, do research and development, raise customer awareness through marketing, or pay for other things critical to long-term growth.
Investors can use stock exchanges to help distinguish healthy, reputable companies from more questionable ones. Stock exchanges have requirements for companies to list their shares. The most prominent stock exchanges set strict listing requirements that are tough for most companies to hit, including minimum figures for outstanding shares, market capitalization, and company income. Investors know that a stock listed on an exchange has met those requirements, and if a stock isn't on the exchange, that’s an indication that an investor ought to find out why.
Companies that list their stocks on stock exchanges also must give investors a lot of information about their businesses. The U.S. Securities and Exchange Commission requires listed companies to make these disclosures, including quarterly and annual financial reports. These reports, along with other important news items disclosed as they occur, help investors know more about the companies in which they want to invest.