Initial Public offering (ipo) and Its Process

Unit VI Essay,

MBA 6081, Corporate Finance

By

ID: 250766– BACH KIM

Ho Chi Minh City

Professor: Dr. Geoffrey VanderPal 

Columbia Southern University

An initial public offering (IPO), is when a company (called the issuer) issues common stock or shares to the public for the first time. They are often issued by smaller companies, younger seeking funds to expand, but can also be done by large private companies looking to become publicly traded according to Berk, J., &Demarzo, P (2014).

Each country has its own regulations for the issuance of securities to the public for the first time. However, to release to the public of securities issuers typically have to ensure basic conditions following years:

- An initial public offering to the public will generate good image and reputation of the company, so the company will be easier and less costly than in raising capital through the issuance of bonds, shares in the next time. In addition, customers and suppliers of the company may also become a shareholder of the company and therefore the company will benefit from the purchase of raw materials and consumer products.

- An initial public offering to the public will increase the net asset values, help companies get larger and could capital bank loans with preferential interest rates, as well as the provision of pledged assets will little more troublesome. For example, the shares of the public company easily be accepted as the pledged assets for bank loan, the issuance of securities to the public and help the company become a candidate more attractive to foreign companies as a venture partner.

- An initial public offering to the public to help the company be able to attract and maintain skilled staff because when offering securities to the public, the company has always devoted a certain proportion of securities for sale its employees. With stock options, employees of the company will become shareholders, and enjoy capital gains rather than ordinary income. This has made the company's employees to work more effectively and consider the success of the company is its success or failure as mentioned by Berk, J., &Demarzo, P (2014).

- An initial public offering to the public, the company has a good opportunity to build a professional management system as well as develop a clear development strategy. The company is also easier in finding a replacement, thereby creating continuity in management. Besides, the presence of the trustee is not directly involved in running the company also helps to strengthen checks and balances in the management and administration of the company.

- An initial public offering to the public to increase the quality and accuracy of the reporting of the company because the company's report must be prepared in accordance with the general standards by regulation authorities. This makes for evaluating and comparing the performance of companies is made easier and more accurate as stated by Berk, J., &Demarzo, P (2014).