Question

IPOs are associated with several puzzles: IPOs are underpriced on average; new issues are highly cyclical; transaction costs of IPOs are high and long-term performance of IPOs is poor on average.

Why many firms are still choosing to go for an IPO (give at least three possible reasons supporting your answer)?

Why investors choose to buy stocks of IPO firms?

Answer 1

Answer:

Explanation:

Firms still choose to go for an IPO for the following reasons;

1. Majorly, it is a means of generating revenue. Revenue is generated when stocks are sold to the public.

2. It is also a means of reducing risk, The cost of running the business is spread across many investors, so is the risk.

3. There is reduction of the overall cost of capital and gives the company a more solid standing when negotiating interest rates with banks.

4. Companies can easily offer up stocks instead of cash in the acquisition of other companies or in the case of mergers.

5. Having stocks listed on NSE is a means of public exposure

Investors choose to buy stocks of IPO firms because the initial offering is usually at a low rate since the firm is still small and relatively unknown. This stocks bought at a cheap rates have the chance of rising thus generating gains for the investors.