Question

What is the purpose of an initial public offering (IPO)? How does an investment bank facilitate the process? List and describe several recent IPOs. Discuss the advantages and disadvantages of an IPO.

Answer 1

• An initial public offering (IPO) is the process of offering shares of a private entity to the general public and qualified institutional buyers.
• IPO allows a company to raise capital from public investors for growing and expansion plans.
• On issuing shares under IPO the company gets listed on Stock exchange this enabling easy trading of its shares in stock market.
• Investment banking companies facilitates the role of underwriters in IPOs. They help the securities issuers in reducing their risk in exchange for a premium.
• Some of the recent qualitative IPOs includes Brookfield Infrastructure, Career Global, Otis worldwide, Alkem Industries, ICICI Lombard and many more.
• Advantages of IPO

1. Easy exit opportunity to shareholders
2. To get publicity and credibility by listing on stock exchanges
3. Expansion and growth through the capital raising
4. Provide liquidity to the companies by raising cash

• Disadvantages

1. Cost of raising capital through IPO is very high.
2. It increases compliance costs after company gets listed.
3. Company has to comply with various securities laws and corporate governance structure.
4. Market price of stock depends on the market fluctuations.