Initial public offerings (IPOs)

Definition

An Initial Public Offering (IPO) is the process through which a private company becomes publicly traded by offering its shares to the public for the first time. This event allows companies to raise capital from public investors and can significantly impact their growth potential.

5 Must Know Facts For Your Next Test

1. IPOs are often underwritten by investment banks that help determine the offering price and market the shares to institutional and retail investors.
2. The IPO process includes several steps such as filing a registration statement with the SEC, conducting roadshows, and setting an initial offering price.
3. Companies going public through an IPO must comply with regulatory requirements and provide detailed financial disclosures.
4. The success of an IPO can be influenced by market conditions, investor sentiment, and the company's financial health and growth prospects.
5. Post-IPO, companies are subject to ongoing disclosure requirements and must file regular reports with regulatory authorities.

Review Questions

• What role do investment banks play in an IPO?
• What are some key steps involved in the IPO process?
• How do market conditions affect the success of an IPO?

Related terms

Underwriting:

The process by which investment banks assess risk and establish a price for new securities issued in an IPO.

Prospectus: A legal document that provides details about an investment offering to the public, including risks, financial statements, and business plans.

Secondary Market:

A marketplace where previously issued securities are bought and sold among investors following their initial sale in an IPO.