Questions On Initial Public Offerings

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Isaac Smith Sinha: FIN 494 4/23/15 Initial Public Offerings Introduction: Initial Public Offerings are when any type of security is sold to the public for the first time within a company’s history. The main reason for this is to hope that a liquid market will grow within this security, where people are trading shares on a daily basis. The reason that I have decided to do research on IPO’s is because it sounds very simple, yet there are many things that must be done in order to reach a point to offer an IPO and there are also many ups and downs for companies to weigh to see if it is worth taking their security to the general public. Throughout this paper I will introduce to you why company’s want to issue IPO’s, how they do it, and how they try to create the initial price per share. Along with those key ideas, I will talk about why most IPO’s are underpriced when they go to market, price changes once on the market, and lockup agreements. Finally, I am going to give a few examples of recent IPO’s such as Facebook and Sportsman’s Warehouse, and other IPO “fallouts.” Why do firms want to go public? As noted above an IPO occurs when a security is sold to the public for the first time. Most firms start out generating equity privately from a relatively low amount of investors. With this type of funding there is no liquid market for any of the shareholders to sell their stock within a privately funded company. When companies decide that they need to raise more capital than what

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