Why Do Companies Choose NASDAQ for Their IPO?

The NASDAQ came into existence in 1971. That may seem like a long time ago, but it is a baby compared to the New York Stock Exchange (NYSE), which was established in 1792. While the NASDAQ is known as a tech-heavy exchange, the NYSE is known for housing older brick-and-mortar companies. Companies trading on the NYSE are often larger, bottom-line-focused companies that pay dividends and grow their top lines slowly but steadily. Companies trading on the NASDAQ are usually more growth-oriented. Of course, there are exceptions on both sides. 

That perception does play a role for some companies when choosing between the NYSE and the NASDAQ. For example, LinkedIn Corp. (LNKD) chose the NYSE because it didn’t want to be grouped with social networking sites. This isn’t to say companies listed on the NASDAQ should be seen as inferior. That’s not the case at all. It’s just a different environment. If a company like LinkedIn wants prestige, it will list on the NYSE.

However, information technology, biotech, and other small-cap tech companies have no interest in prestige. Their goal is to keep costs low so they can maintain more capital in order to help fuel growth. In most cases, the difference in fees between listing on the NYSE and NASDAQ won’t make or break a business, but if a smaller company lists on the NASDAQ, it's still a cost-efficient decision.

Cost Differences

If you look for listing cost differences between the NYSE and NASDAQ, you will find a lot of different information. You might even find yourself confused. To simplify, it comes down to how many shares a company is listing.

In this example, let’s assume a company is listing 75 million shares. On the NYSE, this would cost $360,000, plus an annual listing fee of $71,000.(According to the NYSE Listed Company Manual, the price per share listed is $0.0048.) It’s a little more complicated on the NASDAQ because there are three submarkets: Global Select Market, Global Market, and Capital Market. If listing 75 million shares on the Global Select Market or Global Market, the listing fee is $295,000 plus a $79,000 annual listing fee. If listing 75 million shares on the Capital Market, the listing fee is just $75,000 plus a $79,000 annual listing fee.

Prestige and cost are the two biggest factors for a company when deciding between the NYSE and NASDAQ, but there are a few other factors to consider as well.

Important Factors

Any company listed on the NYSE must have an independent compensation committee and an independent nominating committee. This is not required on the NASDAQ, where companies have the option of executive compensation and nominating decisions made by a majority of independent directors. Companies listed on the NYSE must also have an internal audit function and corporate governance guidance. Neither of these is required for companies listed on the NASDAQ.

The NASDAQ does come with another advantage that some people overlook. It has an electronic billboard in Times Square, which lists its companies and their products. This is one of the reasons Kraft Foods Group, Inc. (KRFT) switched to the NASDAQ in 2012 (increased exposure for its products). 

The Bottom Line

The NYSE is more expensive and offers more prestige. However, in today’s tech-heavy world, many companies see listing on the NASDAQ as a logical option considering the cost savings. To date, companies listed on the NASDAQ are seen as more growth-oriented, which means more volatility to go along with increased upside potential.

Dan Moskowitz does not own any shares in LNKD or KRFT.

Article Sources
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  1. New York Stock Exchange. "NYSE Listed Company Manual: 902.03 Fees for Listed Equity Securities."

  2. Nasdaq. "The Nasdaq Stock Market Offers Three Distinctive US Market Tiers."

  3. Nasdaq. "Initial Listing Guide March 2021," Page 12-13.

  4. Nasdaq. "Kraft Foods Group to Ring the NASDAQ Stock Market Opening Bell Remotely from Headquarters in Northfield, Illinois."

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