BUSI 4500 Chapter Notes - Chapter 4: Underwriting, Fixed Cost, Capital Market
7 May 2018
School
Department
Course
Professor
IPO
1. Characteristic
a. Underpricing
b. Long term performance
2. Reason
a. Raise equity
b. Exit strategy
c. Diversification
d. Add market sentiment
e. Life cycle of firm
3. when?
a. Rise/ bullish capital market
b. Need equity
c. Attractive IPO market
4. Pro
a. Direct access to equity market
b. Low credit cost
c. Diversify portfolio
d. Set price for firm
e. Outside monitoring
f. Transfer of control
g. Exploit mispricing
5. Con
a. Underprice
i. Asymmetric information
ii. Attract firm
iii. Signal market you are small firm
b. Agency problem
c. Registration + underwriter cost
d. Low confidentiality
e. Low control
f. High regulation
6. Process
a. Decide to go public and find Investment banker
b. Value firm + set issue detail
c. Estimate demand for offering price
d. Meet filing requirement and issue propectus
e. Get proceed+ allocate stock
7. Type of underwrite
a. Firm commitment
b. Best effort
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