The world of finance is complex. There are many aspects, which cannot be fully explained and still confuse the researchers. One of the most discussed topics is that of Initial Public Offerings (IPO) mainly because of the intricate connections between investment bankers (underwriters), issuers and buyers. This paper will try to summarize the whole process of going public and emphasize on the role of the (lead) underwriter in it.
The paper discusses mainly the American “way” of going public, but the procedure is generally the same for the European market with some differences that are explained in the text. The advantages, disadvantages and the legal requirements for going public are enlightened, in order of understanding the important role, which the underwriter plays in the whole process. The structure and the legal consequences of the due diligence process are presented. The types of agreement between the underwriter and the issuer are described, with the consequences that originate from them. The ways of determining the price and the advantages and disadvantages of any of them are presented, with respect to the importance of the underwriter’s role in them and the liabilities that she has. The problem with the underpricing is discussed more detailed, since this is one of the big challenges in the IPO process. Some theories that explain this phenomenon are briefly discussed, showing the mechanism that is behind the underpricing problem. Some of the unlawful allocation practices are listed, with examples that show that even the top underwriters use prohibited actions to ensure the successful completion of the IPO process. The importance of the pre-opening period for the determination of the right market price and the active participation of the underwriter in the bidding during the first day of the offering is emphasized, as well as the fact that the reputation of the underwriter is one of the most important qualities that she possesses, with respect to the choice of underwriter, the initial returns and the long-run underperformance of the IPO stocks.
Table of Contents
- Introduction
- Going Public
- Advantages of Going Public
- Disadvantages of Going Public
- Legal Requirements
- The Initial Public Offerings Process
- Choosing an Investment Banker
- Registration
- Marketing
- Pricing of the Stocks
- Theories for Underpricing
- Problems with the underpricing
- The Offering
- After-market Stabilizing Activities of the Underwriter
- Conclusion
Objectives and Key Themes
This paper aims to comprehensively explore the initial public offering (IPO) process, with particular focus on the role of the underwriter. It examines the advantages and disadvantages of going public, analyzes the intricacies of the IPO process, and delves into the crucial role of the underwriter in managing the offering, pricing the shares, and ensuring successful market performance.
- The complexities of the IPO process and its significance in the world of finance
- The role and responsibilities of the underwriter in facilitating the IPO process
- The considerations involved in determining the pricing of IPO shares
- The challenges and theories surrounding underpricing in IPOs
- The importance of the underwriter's reputation in influencing market performance and investor confidence
Chapter Summaries
The introduction sets the stage for the discussion, highlighting the complexity of the IPO process and its key players, including investment bankers, issuers, and buyers. It emphasizes the importance of the underwriter's role in the process.
Chapter 2 explores the decision to go public, presenting the motivations behind it, including fundraising, increasing market value, employee compensation, shareholder liquidity, and reputation enhancement. The importance of timing in the going public process and the concept of "shelf registration" are discussed.
Chapter 3 delves into the IPO process itself, covering critical aspects like choosing an investment banker, registration, marketing, pricing of the stocks, and the underwriter's involvement in each stage. The chapter also examines theories for underpricing and its implications for IPOs. It explores the legal and ethical implications of underpricing and discusses the importance of the pre-opening period and the underwriter's role in stabilizing the market during the first day of the offering.
Chapter 4 examines the after-market stabilizing activities of the underwriter, emphasizing the crucial role of the underwriter in managing the market performance of the newly listed company. It explores how the underwriter's reputation influences market expectations and long-run performance of the IPO stocks.
Keywords
The primary keywords and focus topics include: initial public offering (IPO), underwriter, investment banking, going public, pricing, underpricing, market performance, reputation, legal requirements, registration, due diligence, marketing, after-market stabilization, IPO process, securities, stock offering, issuers, buyers, and financial markets.
- Quote paper
- Georgi Georgiev (Author), 2005, The Role of the Underwriter in the Initial Public Offering Process, Munich, GRIN Verlag, https://www.grin.com/document/72982
