There are many transaction costs in primary market, which are incurred for various activities pertaining to the capital markets. Whether keeping the transaction costs low serve the purpose or not is outlined in the article below. Various other features of the transaction costs are also provided in the article.
Transaction costs are of different types depending on the nature of activity in the primary markets. Some of the commonly known transaction costs are listed below.
Types of transaction costs in primary markets:
There may be different types of transaction costs like:
Costs related to regulations
Costs pertaining to listings on the exchange
Costs of investment banking
Fees for rating agencies
Expenses related to publishing
Expenditure related to marketing strategies.
Effect of Transaction Costs in Primary Market:
Owing to the transaction costs in primary market, the macroeconomic level gets impacted. There are many advantages of keeping the transaction costs in primary market low. That being the case, the secondary markets too gets impacted in a positive manner. The transaction costs can be related to any kind of investment vehicle. Studies reveal that if the capital markets are operating in a healthy manner, it leads to growth in the economy of any country.
Advantages of keeping the transaction costs in primary market low:
Therefore, statistics have indicated time and again that if the transaction cost involved in issuing equity as well as debt are kept low, it is more likely that development of the securities market is catalyzed for the good. The securities market is measured by depth, breadth as well as liquidity.
Studies also reveal that even if the equity markets are functioning properly, it needs to be improved:
Allocation of resources
Growth in economy
With regard to corporate governance, it may be mentioned here that corporate governance is enhanced by acting as a positive catalyst thereby encouraging mergers as well as takeovers and providing appropriate information to the public.