Why IPO? What are the advantages and disadvantages of a company going public?
Advantages of IPO：
This ability to quickly raise potentially large amounts of capital from the marketplace is a key reason many companies seek to go public. Capital can be used to fund research and development (R&D), fund capital expenditure, or even used to pay off existing debt.
IPO also brings these benefits to the previously private company:
Increasing exposure, prestige, and public image
Facilitating acquisitions (potentially in return for shares of stock)
Enlarging and diversifying equity base
Creating multiple financing opportunities: equity, convertible debt, cheaper bank loans, etc.
Attracting and retaining better management and employees through liquid equity participation
Despite the benefits it brings, there are also many financial and management costs related to IPO. The disadvantages to completing an initial public offering include:
Requirement to disclose financial and business information
Significant legal, accounting and marketing costs, many of which are ongoing
Risk that required funding will not be raised
Increased risk of litigation, including private securities class actions and shareholder derivative actions
In rare circumstances, the stock price falls below the initial public offering price on the day of listing. This may result from market stagnancy or issue prices are so high that investors refuse to purchase the stock.
When it happens, investors may think the company uses information asymmetry to cheat on them and it discourages market confidence. The company's reputation and stock prices will be negatively affected.
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