Initial Public Offering

An initial public offer or offering (IPO) occurs when a company issues common stock to the general investing public for the first time. An IPO is a pivotal event, because it provides the first opportunity for a stock market to react to the publicly available information about a company's competitive strategies. Firms choose to raise capital in public equity markets for a number of reasons. The first, and most obvious, is to finance growth strategies. The IPO provides access to large amounts of equity capital and the ability to restructure the firm's balance sheet (for example, retire debt) and provide funding for new investment. An IPO also provides the firm's initial investors a mechanism for exiting or “harvesting” their investment. An IPO can help firms ...