The main reason why companies decide to proceed with IPO is mainly to gain access to new funding. The proceeds from the share issue itself are not necessarily intended for direct expansion. The prospects for growth from acquisitions, the funds available for organizational expansion and refinancing of current borrowings have shown, among other things, to be the main motives that newly listed companies consider as very important.
The general initial public offering procedure enhances the image and publicity of enterprises and gets not only an initial certification of the professionals in the financial markets but also a long-term price bidding (price signal) to suppliers, workforce and customers. According to Roell (1996), a robust equity value in the subsequent acquisition (during the trading of securities after their initial bid for public offering) reassures suppliers that they can safely grant trade credit, employees are convinced that they can expect a fairly stable job, and customers think that the products of the company will be supported as a result of their purchase (in the aftermath of their purchase).
Table of Contents
Introduction – Initial Public Offering
Assymetric information in general
Theories of asymmetric information
Information asymmetry among issuers and investors.
Information asymmetry among issuers and underwriters.
Information asymmetry among investors
Assymetric information and Signalling Theory
IPO Underpricing
Causes of Initial Public Offering Underpricing
Conditions of perfect information
Delay of negotiation and stock market rise
Underpricing as a hedge against legal risks
Underpricing and oversubscription of the share
Long-run underperformance of IPOs
Research
IPOs in US market 1985 – 1996 and Greek Market 2002-2006
Other international research
The reasons why IPO returns in the Internet sector are higher than other sectors
Advices to Investors
Conclusions
Reference List
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