What is an IPO
An IPO or an Initial Public Offering is the set of stocks that a company sells it for the first time to the public. This is done to expand the capital by going public.
Which are the companies that can issue an IPO?
IPOs are issued by private companies who plan to go public. Private Companies, who aim to maintain their standing, do not make investments in their shares available to the public. Some of the bigger market players have still not issued their IPOs: McDonalds, IKEA among others. A private company who intends to go public releases IPOs for the purpose. Government owned companies to divest a part of their stakes to the public. The largest ever IPO issued in the Indian stock market is of Coal India Limited in the year 2010. National Highways Authority of India (NHAI) is the most recent IPO issue at National Stock Exchange.
Why do companies issue their IPOs and why some companiesdon’t issue IPOs?
Financial benefit is the first and the most important direct benefit that a company derives from releasing an IPO.
The company widens its possibility of earning as it widens its sphere of financial investors.
During occurrence of a bullish stock market, that is when the equity market experiences a financial boom, public companies experience increasing profits.
Such benefits attract a company to go public.
The liquidity in the capital of the company increases. Since the company has gone public, it faces a bilateral benefit where the company enjoys increased market share and more and more people get to know about the company and its offerings so there is increased awareness.
The companies can also assist their merger and acquisition activities in return for the sale of their stocks.
A company increases their financial involvement in the market. Although issuing IPOs and greater involvement may not be all good for a company. Going public makes it mandatory for a company to share its information. All the company details, out to the public, comes hand in hand with the sale of IPOs and this can be risky at times. It becomes a costly affair as the legal costs and management discrepancies due to involvement of major shareholders in the management of the company becomes a costly affair for the company.
How do IPOs affect the economy of the country?
An increase in the IPOs is always a good indication for the economy of a country as it signals more funds into the share market.
During recessions, companies desist from stock trading due to looming losses.