Corporate Finance, 6th Edition

Chapter 44INITIAL PUBLIC OFFERINGS (IPOS)

Welcome to the wonderful world of listed companies!

Theoretically, the principles of financial management that we have developed throughout this book find their full expression in the share price of the company. They apply to unlisted companies as well, but for a listed company, market approval or disapproval – expressed through the share price – is immediate. Being listed enables companies to access capital markets and have a direct understanding of the market value of their companies.

Source: Thomson One Banker, Factset

Being listed enables a company to raise funds in a few weeks or even a few days because:

• financial analysts periodically publish studies reviewing company fundamentals, reinforcing the market's efficiency;
• listing on an organised market enables financial managers to “sell” the company in the form of securities that are bought and sold solely as a function of profitability and risk. Poor management is punished by poor share price performance or worse – from management's point of view – by a takeover offer which leads to a change in management;
• listed companies must publish up-to-date financial information and file an annual report (or equivalent) with the market authority.

We refer the reader interested in the reasons for an IPO to Section 42.2 where we discuss this topic.

Section 44.1 PREPARATION OF AN IPO ...