Skip to main content

Initial public offerings 1

Published on January 18, 2015   33 min
Hello, this is Jack Cooney from Texas Tech University. I'm going to talk about initial public offerings.
As I say here, the initial public offering of common stock is probably the most important capital raising event for a corporation. It's typically a very large offering with respect to the outstanding shares of the company. There's a lot of valuation uncertainty, obviously, with respect to the initial public offering. This stock has not been publicly traded before, so we don't know what it's worth. So the investment bank that takes it public has to gather information from the issuing firm and from purchasing investors to try to determine their appropriate offer price. The company obviously gains access to the public markets for the first time, so they can now start issuing common stock to the public through regular stock offerings, season stock offerings. And then also there are now reporting requirements. They have to start filing their financial statements. This provides information to potential investors that are interested in purchasing this stock, but it also provides information to competitors of the issuing firm and takes away maybe some of the advantages the firm might have as a private firm. So firms often have to decide, do I want to become a public firm and gain access to the public markets and offset that with respect to the reporting requirements and providing information to competitors.