When a company's stock is delisted, it is no longer traded on the stock exchange where it was previously listed. There are various reasons why a company’s shares may be delisted, such as bankruptcy, failure to meet listing requirements, or voluntary delisting. In this article, we will explore what happens when a stock is delisted and what it means for investors.
What is delisting?
Stock delisting is when a company's shares are removed from a stock exchange and can no longer be publicly traded. This means that the company is no longer required to report financial information to the public, and shareholders can no longer buy or sell the company's shares on the exchange.
Delisting can occur for several reasons, including regulatory violations, financial difficulties, or mergers and acquisitions.
Reasons for delisting of stocks
- Poor financial performance: The stock might be delisted if a company's financial performance is not up to the mark.
- Non-compliance with exchange regulations: Stock exchanges have specific regulations that must be complied with to be listed. If these regulations are not met, a stock may be delisted.
- Mergers and acquisitions: When two companies merge, the stock of one of the companies will be delisted.
- Bankruptcy: In the event of a company going bankrupt, the stock of that company is delisted.
- Voluntary delisting: Sometimes, a company might delist its stock voluntarily.
- Low volume of trading: If the trading volume of a stock is too low, the exchange might delist it.
- Poor corporate governance: If a company is not following good corporate governance standards, its stock may be delisted by the exchange.
Impact of delisting on shareholders and company
When a stock is delisted, it means it is removed from the list of stocks actively traded on the exchange. This can have a significant impact on shareholders and the company. Delisting can lead to a decrease in shareholder value as the stock can no longer be traded, except in the case of delisting post merger or acquisition.
Furthermore, the delisted company will not be able to raise capital as easily as before. The company may also experience a decrease in its public profile and may be subject to additional regulatory scrutiny. In addition, the company may suffer financial losses due to reduced liquidity, increased costs, and reduced trading volume.
What happens to the value of a delisted stock?
When a stock is delisted, it is removed from the stock market. You may wonder what happens to delisted stock! In this case, investors can no longer buy and sell the stock on the public exchange. When a stock is delisted, the stock's value usually drops significantly. This is because the lack of trading activity means there is less liquidity and fewer buyers and sellers in the market.
Additionally, there needs to be more information available to the public, which makes it difficult to determine the stock's value. As a result, delisted stocks often become illiquid and have little to no value.
The company may still exist in some cases, but it will no longer be publicly traded. In these cases, investors may be able to sell their shares directly to the company or other investors, but the price is often much lower than if the stock was still publicly traded.
What to do after a stock is delisted?
First, investors should not panic. Delisting typically does not mean the company will go out of business. It may still be a viable business, but its shares are no longer traded on the exchanges.
Second, investors should research the company to determine what their options are. They should understand why the stock was delisted and the company's actions to rectify the problem.
Third, investors should consider selling the stock if they are no longer comfortable holding it. Delisted stocks can be more volatile and hard to trade, so investors need to weigh the risks.
Lastly, investors should consider taking action if they feel the delisting was unfair. Depending on the exchange, investors may be able to appeal the delisting or file a complaint.
What happens to the company after delisting?
When a company's stock is delisted, it no longer trades on the exchange where it was previously listed.
When a stock is delisted, shareholders are usually given cash compensation for their shares or the option to exchange the stock for securities of the company. This compensation is usually based on the stock's average price over the past few months.
Investors can no longer trade their company shares on the exchange, so the stock can become illiquid, meaning it is difficult to find a buyer. Delisted stocks can still be traded in the over-the-counter (OTC) market, but this market is not as regulated as the exchange, so investors should be aware of the potential risks.
Delisting can also hurt the company's credibility, as it may indicate that the company needs to meet the exchange standards. This can make it more difficult for the company to raise capital, as potential investors may be wary of investing in a delisted company.
Final thoughts on delisting stocks
Stock delisting can have far-reaching effects for both the company and its shareholders. Companies may suffer a loss of investor confidence and difficulty raising capital. At the same time, shareholders may experience a significant financial loss and may be limited to trading on the OTC market, a riskier and less liquid investment. Investors should take care to research and monitor the companies in which they choose to invest.
Disclaimer
The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.