Question

Should Firms That Go Public Engage in International Offerings?

POINT: Yes. When a U.S. firm issues stock to the public for the first time in an initial public offering (IPO), it is naturally concerned about whether it can place all of its shares at a reasonable price. It will be able to issue its stock at a higher price by attracting more investors. It will increase its demand by spreading the stock across countries. The higher the price at which it can issue stock, the lower is its cost of using equity capital. It can also establish a global name by spreading stock across countries.

COUNTER-POINT: No. If a U.S. firm spreads its stock across different countries at the time of the IPO, there will be less publicly-traded stock in the U.S. Thus, it will not have as much liquidity in the secondary market. Investors desire stocks that they can easily sell in the secondary market, which means that they require that the stocks have liquidity. To the extent that a firm reduces its liquidity in the U.S. by spreading its stock across countries, it may not attract sufficient U.S. demand for the stock in the U.S. Thus, its efforts to create global name recognition may reduce its name recognition in the U.S.

WHO IS CORRECT? Use the Internet to learn more about this issue. Which argument do you support? Offer your own opinion on this issue.

Answer 1

When it comes to going international raising an IPO in the foreign market is a good option. It helps gain firms an international presence and gain a goodwill both at the domestic as well at the international level. When it comes to the question Should Firms That Go Public Engage in International Offerings ?

In my opinion i feel that when a firm raises an IPO for the first time it is concerned about reaching a big customer base but when it comes about raising the IPO for the first time is should go domestic rather than International Directly. Going public is a very good idea but the route towards going public is first domestic and then international. The reason why I am with this notion is that if the roots of the firm are strong at the domestic level then it will be known in the domestic market well and for going international if some costs and losses are incurred then they will be offset by the domestic advantages.

Also going international and making a presense is a good notion but for that the firm should have a domestic market so that it is backed by it. Going international by an IPO will not be of that much advantage due to various types of costs and formalities and listing obligations and foreign market regulations are involved. Once a firm has set up itself well at the domestic level then surely it can go international by means of various alternatives like shares, debentures etc.

Also liquidity is an important impediment here. Investors usually prefer stocks which have a good resale value or in other words a good secondary market. Hence if a firm goes international by an IPO it is giving up on the secondary market and as result of which the share will loose value because of not having a secondary market. The situation will worsen more if the firms IPO is not fully subscribed or not fully absorbed in the country where it is raised.

Therefore in order to avoid such issues a firm should raise an IPO domestically and therby setting up well in the domestic market it should look forward to going international.