ECONOMY

Size does not really matter

The Athens stock market remains essentially a blue chip market and there are several good reasons for this state of affairs. Acting on the basis of past experience, though – however successful that might have been – often leads to future catastrophe. To avoid that, it would be useful to take a few simple matters into account. Of course, high-capitalization stocks offer advantages, the most important being their high trade volume, which provides investors with a greater opportunity to exit the market if need be. Also, big companies are supposed to abide by the rules of good corporate governance and, a few nasty experiences notwithstanding, we can pretty safely assume that as a given. It is also known that the stock market provides the state budget with one of its important revenue resources, mostly through the dividends – and, sometimes, stock sales – of big state-controlled utilities. The above observations should not blind us to some longstanding market principles. At the end of the day, it does not matter whether a company is big as long as it is strong, financially speaking. Independently of the vagaries of its stock price, companies with strong cash flow – that is, with earnings that can back up a high dividend – are those with the brightest future prospects. Companies whose moves generate value are the future champions, and size does not matter as much as achieving the critical mass that will allow expansion into new markets, either on their own or through mergers, acquisitions and strategic partnerships. It is that simple. Until now, the public has been fed the myth of «national champions» consecrated due to their size rather than their financial strength. In those cases, however, the truth is always revealed in the end. The obligatory implementation of International Financial Reporting Standards for all listed firms means the days when companies could hide their liabilities or relegate them to small print in their financial statements are almost over. Some old champions will now be relegated to also-rans.