Initial Public Offerings
Many people may ask why a company would decide to go public and there are many reasons why a company chooses to make this move. The main reason is to increase their capital. The largest misconception is that selling corporate stock publically is like selling in the stock market. Unlike the stock market, public companies or IPO’s receive the money that comes from the sale of their stock resulting in capital for the company to utilize in a multitude of ways. Some ways a company may use the money gained from stock sales would be to purchase inventory, equipment, build additional locations, hire more employees, and the list goes on.
In addition to increasing capital there are additional reasons a company can decide to go public a few of these are listed below:
• Enabling cheaper access to capital
• Exposure, prestige, or public image
• Getting liquid equity to current shareholders, employees, management Facilitating Acquisitions
• Creating other potential financing options
• Increased liquidity
• SEC requires it due to shareholder limit exceeded” (Mathur, 2012)
An initial public offering (IPO) occurs when a company has decided to go public and sell its stock to the public for the first time. Although companies can sell their stock without assistance from an outside source, most companies will choose to turn to an investment banker instead. An investment banker is a financial intermediary that will connect the companies issuing securities to potential investors. The process that occurs is called underwriting, which is the act of raising funds through the sale of debt or equity. As an underwriter, the investment banker will purchase securities or debt from a company or government and then resell them to investors at a higher price. If the underwriter is unable to sell all of the securities that were issued to them, they must then decide whether to keep the investment for themselves or sell at a lower price, suffering a loss on...