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Post ipo debt

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Past evidence of companies going public with debt indicates that debt-IPO firms are more likely to be backed by a financial sponsor e. These firms typically are older, yet possess a steady growth rate, exhibit superior operating performance, and spend little on research and development. What is the common theme of these firms that financial sponsors look for? Two words: cash flows. These operational and financial properties provide a consistent and predictable stream of net cash inflow necessary to service periodic debt obligations and principal payments.

The ultimate goal of private financial sponsors is exit — realizing returns by selling their shares either through private placement or public offering. Also, when an economic downturn hits, companies have to race for additional financing to continue operations and survive.

At first, these firms would seek to max out their cheap financing sources, namely cash from operations and private debts. However, the problem with private debts, such as credit lines and senior loans, is that the amount is limited. In such a situation, debt IPOs come in handy to provide firms the financing sources not available from private lenders, because the pool of public capital market is large and public investors are flexible to take on more risks than are banks.

With debt IPOs, financial sponsors of private companies can comfortably postpone their equity exits while simultaneously obtaining additional financing through public borrowing not available from their current private creditors. Firms that have gone through a debt-IPO obtain a significant edge for subsequent equity offerings. In research conducted by Glushkov et al.

In addition, with the strong cash flows and broader base of collateral assets, debt-IPO firms face a lower chance of underpricing from subsequent equity offering. Bankers find it easier to make the investment case for companies with healthy operations, and investors are more willing to invest in firms that are transparent with their reporting. As the likelihood of underpricing decreases, managers are more willing to raise more capital.

In the s, the need for air shipment soared as public demand for quicker delivery services accelerated. Thus, an equity IPO was not a viable option though the plan for subsequent public equity issuance was foreseeable. Private debt capacity had hit the limit, and banks were concerned about taking on the additional leverage risk outside of their comfort zone. The size of this debt offering was in the top 2 percent of all public debt issues that year.

The decision to use a debt IPO prepared the company to develop strong financial metrics and reporting capacity for a subsequent, successful public equity offering in The use of public debt issuance to access capital markets is both an alternative worth considering and a solid steppingstone for subsequent equity issuance for companies that choose to do so.

Companies that opt for a debt IPO enjoy a lower expense from publicizing IPO information, cheaper cost of capital, and better terms for subsequent public offerings compared to equity counterparts where owners have to give up voting rights and ownership in exchange for cash not available in the private capital market.

Khoa is from Vietnam and grew up with great books of science, Greek mythology, and biology. In addition to his Master degree in Accounting, he is also completing minors in philosophy and logic. Khoa enjoys going on adventures, either motorcycling across Central Vietnam or camping in national forests, reading a good novel, and travelling with his wife.

Press enter to begin your search. No Comments. Related Articles Tranched Preferred Stock This article covers accounting for tranched preferred stock, why companies benefit from financing this way, and why investors benefit as…. Venture Debt Venture debt is a viable alternative to equity funding and traditional debt funding for smaller companies.

This article provides an…. Revenue-Based Financing Looking for startup friendly debt? Revenue-based financing has allowed hundreds of growing companies leverage monthly recurring revenues to avoid the…. Author Khoa Tran Khoa is from Vietnam and grew up with great books of science, Greek mythology, and biology. Connect with us on. This round type is more common in the US.

It has a specific meaning, and is never public money: a publicly listed company sells shares privately not via stock market to hand-picked individuals usually family offices, individuals, institutional investors, not government. Similar to debt, a company promises to repay the principal as well as added interest on the debt. The terms Spinout and Spin-off have the same meaning. We use the term Spinout. Our definition of Spinout does not cover corporate spinouts companies that have spun out of large corporates like Samsung, Toyota, etc.

Startups that do not follow this condition, should not be counted as Spinouts. For example, the source mentioning that the company was founded by the Oxford University alumni is not enough to count the startup as a Spinout. Similarly, the source mentioning that the company is a University startup or a startup incubated at the University, is not enough to count this startup as a Spinout.

Feel free to reach out to us via our support chat bottom right or send us a message here. Back to home. About Dealroom. Solutions and use cases. Getting started with a free account. Using Dealroom Premium features. Product Updates. Latest Features. Example: LocalGlobe PRIVATE EQUITY : private equity funds more closely resemble venture capital firms in that they invest directly in companies, primarily by purchasing private companies, although they sometimes seek to acquire a controlling interest in publicly traded companies through stock purchases.

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Startup Tech Company Twilio sent out letters offering to repurchase stocks, which can be considered a big step that suggests it may finally go public. Breaking News. Saudi Aramco, a company bigger than the Apple and Walmart combined. Ferrari shares rev up in market debut but shift to low gear a week later.

Stock market volatility forces Albertsons to delay IPO. Ferrari needs better strategy to attract more investors. Twilio sends letter offering to repurchase stocks to early shareholders, signalling possibility to go public. We will not spam you! Everything went well, You are now subscribed! Name: E-mail:. Most Popular More Articles. Galen M. Being a DIY investor seems attractive on paper but can it be actually effective in helping you reach your financial goals?

Markets got you worried? If you are planning to add listed bonds to your fixed-income portfolio, you ought to be aware of these two risks. Is going the index investing way the best approach, especially now in a volatile market environment?

Understand how changing interest rates impact your investment portfolio and what if at all, should you do about it. Underexposed to equity? Overexposed to equity? Much of the recovery in equity markets over the past couple of months is due to the tax cuts for corporates, announced by the Finance Minister, and a series of other administrative measures announced.

One can expect more such measures to trigger the economic recovery. Market watchdog Sebi recently came out with new guidelines for liquid funds. The newly introduced norms could potentially change the portfolio orientation of liquid funds. When markets tend to go through their occasional drops, the people who come out on top are often those who kept on investing as if nothing has happened. Most likely, basic needs will grow in line with inflation or less. There is no doubt that bank fixed deposits FDs are considered safe in that you will most likely get your money back.

But did you know that bank FDs can negatively affect your savings over the long term? We have seen several folks doubt whether mutual funds have delivered returns over time. When in doubt, trust in data. So, here goes our analysis. In order to setup my PF account to enable electronic withdrawals, I recently tried to seed my Aadhar number in the EPF UAN portal and went through some struggles that many of you are likely to go through, or are already going through.

Looks like the long winded and painful process of withdrawing from your EPF Account is all set to become a lot more simpler. If you are in this position, there are two convenient options for you: Bank Fixed Deposits and Debt Funds. In this article, we compare them on different criteria and evaluate which is better for you. Scripbox views and perspectives on the Union Budget and what it means for the growth of the Indian economy. In the short term, there may be a negative impact as FPIs invest less in emerging markets, including Indian equity, thanks to a potential rate hike in the US.

Indian domestic consumption and economic revival will be mitigating factors. With the Nifty scaling a new high at 15, level, should you stop for now or change the way you invest? It is said that looking at the absolute level of an index is hardly an accurate indicator of whether the market is expensive and potentially close to a peak.

One of the key questions is whether equity investors should convert their equity holdings to cash given the likely economic impact of the second wave and even a third wave as is being predicted by some. RBI recently asked all the banks to use two-factor authentication for auto-debit transactions on their credit and debit cards.

Axis mutual fund has removed two of its fund managers from 7 schemes amidst front-running allegations. SEBI has initiated a probe, and this is a developing situation. None of the funds are part of the Scripbox recommendation. Considering their exposure to mutual fund portfolios across the board, this solid performance is good news for your investments and wealth. IT is also a significant employer in the country and this performance indirectly bodes well for the overall economy.

According to a survey by ET, business leaders of India Inc are bullish about a pick-up in private investment. This combined with a PMI of For the prospects of your wealth, this is good news indeed. We are watching the developments closely. We also believe individual fund managers are well placed to protect investor interests and take appropriate actions in their respective portfolios. Fund managers and leadership remain the same. We will keep an eye on this and inform you if something fundamental changes.

While the market has reacted negatively to this, for now, the long term impact on investor wealth is unclear. Here are some key reasons you should be aware of, and will help you understand why insurance is meant for risk management only.

What are the challenges involved in reviving a policy and when is it a viable option? Is buying insurance supposed to be a one-time affair? Does it ever make sense to own multiple life insurance policies? Retirement investing is often linked to fixed income option both before and after retiring. But is it the right approach? This is in relation to a SEBI circular published on 17th September , on the Uniformity in the applicability of Net Asset Value across various schemes upon realization of funds.

We are the first mutual fund investment service with an algorithm that helps you reduce long term capital gains tax LTCG at the time of withdrawal. A wealth manager can bring a lot to the table when it comes to helping you with tax planning.

It depends on how long you stayed invested and whether you have invested in equity mutual funds, debt mutual funds or hybrid funds. Sometimes a gift can create a tax incidence. Know about gifts and taxes in this article. There are other investment avenues which can help you save a similar amount of tax, however, when you look at performance, none of the others has delivered similar inflation plus returns in the long run.

Whether you invest in a tax-saving fixed deposit or an equity-linked savings scheme, your maximum allowable tax deduction through these investments remains the same at a maximum of Rs 1,50, under section 80 C of the IT Act.

Then why not pick the investment which will help you maximise long term wealth too? There are a couple of ways to save taxes on capital gains. Long-term financial planning and tax planning go hand-in-hand. Which is why, instead of just relegating tax planning to the last quarter or the last few weeks of the financial year, make it a part of your short-term and long-term financial goals.

Here are six signs that tell you that you may be ready to hang up your boots if you wanted. The tenets of asset allocation often mean that while your goal may be one, you may require multiple financial instruments to achieve it.

Should you look beyond VPF while creating an investment portfolio? Unknowingly, we also use intuition in our day-to-day life — say to select our family doctors or partner. Can we use our hunch to also guide our investment decisions? Mutual Fund investor and planning to change your maiden name post marriage? Learn what you must do. Thanks for subscribing to our newsletter!

You will start getting them soon. View, Analyse, Manage, and Grow your wealth with just one app. Practical wealth creation insights for you. Keep in mind You can even invest in pre-IPO opportunities through managed funds on the alternate investment fund AIF platform or through select mutual fund schemes. Advanced Investing Investment Strategy. Posted on 14 Sep, Subscribe Your privacy is important to us.

I can save Rs 25, per month. Can I become a dollar millionaire? Can you take the 50 before 40 challenge? Financially supporting your adult children. Does it make sense? How to Save Money for your Dream Vacation Some prudent financial steps will ensure you unwind without stressing about how you are going to sponsor the trip. Amidst the increasing Fed rate and tension of a global war, should Indian investors consider US equity investment?

Can Passion investing be part of your financial plan? What is the ideal investment time frame for bond investments? How can defence services personnel create a Rs 1. Armed forces personnel? What should you be invested in your 40s? Three reasons not to delay your investment even if this is a market peak With the markets at all-time highs, wondering if it is better to sit on cash?

Why having joint ownership of financial securities can be useful All you need to know about why Joint holding of your financial assets should be on your priority list. Algorithmic or human-based advice — what works? Should employees seek ESOPs in lieu of a higher salary? Have trouble articulating your financial goals?

History of Inflation in India and what to expect going forward Ever wondered what inflation in India looked like decades back? Doctors too, need a wealth plan Doctors face a unique work-life and thus, unique challenges. How to efficiently transfer properties to your loved ones? Making term insurance policy claims smooth for your family in your absence Create an email that includes all that your family needs to know to make an insurance claim and make this otherwise stressful task simpler. What to keep in mind to ensure a fair division of assets among your children?

Should you get multiple health insurance policies or a single policy with a significant cover? Do you factor in inflation when assessing your insurance needs? When to resort to a course correction in financial planning? Is the money you get from an insurance payout taxable? Do you need to supplement your corporate term life cover with an individual policy?

Mistakes to avoid while stepping into a new financial year Avoid these mistakes to ensure the year ahead is a happy one in which you make real progress towards your financial goals. Watch out for these three behavioural biases in your money life Are your behavioural biases helping or hindering your wealth creation efforts? Should you consider Retirement Homes?

Are festive gold purchases an investment? Taking a Car loan this festive season? Should you relocate after Retiring? Mindset matters, in life and in wealth. The 4 real but surprising ways investing changed me Here are 4 key observations, as an investor, that I would like to share with you that show how investing can transform you.

What you can learn from Taylor Swift about building a great career With an active social media presence and record-breaking success, Taylor Swift is at the pinnacle of her career. Is this the right time to switch from equity to fixed income? What you should know before investing in ETFs ETFs have become quite popular in India recently thanks to how they allow exposure to specific indices and themes. Should investors wait for a market crash before investing?

What every investor should know about risk? Are you a DIY investor? Do you have these skills? Planning to add bonds to your portfolio? Manage these risks If you are planning to add listed bonds to your fixed-income portfolio, you ought to be aware of these two risks. In the current scenario should you move to Index funds, ETFs or, stick to active? Why should changing interest rates matter to you?

Markets continue recovery while government focuses on strengthening growth Much of the recovery in equity markets over the past couple of months is due to the tax cuts for corporates, announced by the Finance Minister, and a series of other administrative measures announced. Why does conviction matter when investing?

Why Indian economy should see a consumption boom in the coming years. Have people made money in mutual funds over time? Why are Indian markets rising so much in and is it justified? US Fed may hike rates. Will it impact Indian Equity? The Nifty is at another record high!

How should you invest? Second wave of Covid in India — What should you do with your equity holdings?

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Underwriters, therefore, take many factors into consideration when pricing an IPO, and attempt to reach an offering price that is low enough to stimulate interest in the stock but high enough to raise an adequate amount of capital for the company. One potential method for determining to underprice is through the use of IPO underpricing algorithms. A Dutch auction allows shares of an initial public offering to be allocated based only on price aggressiveness, with all successful bidders paying the same price per share.

This auction method ranks bids from highest to lowest, then accepts the highest bids that allow all shares to be sold, with all winning bidders paying the same price. It is similar to the model used to auction Treasury bills , notes, and bonds since the s. Before this, Treasury bills were auctioned through a discriminatory or pay-what-you-bid auction, in which the various winning bidders each paid the price or yield they bid, and thus the various winning bidders did not all pay the same price.

Both discriminatory and uniform price or "Dutch" auctions have been used for IPOs in many countries, although only uniform price auctions have been used so far in the US. A variation of the Dutch auction has been used to take a number of U. The auction method allows for equal access to the allocation of shares and eliminates the favorable treatment accorded important clients by the underwriters in conventional IPOs.

In the face of this resistance, the Dutch auction is still a little used method in U. In determining the success or failure of a Dutch auction, one must consider competing objectives. From the viewpoint of the investor, the Dutch auction allows everyone equal access. Moreover, some forms of the Dutch auction allow the underwriter to be more active in coordinating bids and even communicating general auction trends to some bidders during the bidding period.

Some have also argued that a uniform price auction is more effective at price discovery , although the theory behind this is based on the assumption of independent private values that the value of IPO shares to each bidder is entirely independent of their value to others, even though the shares will shortly be traded on the aftermarket.

Theory that incorporates assumptions more appropriate to IPOs does not find that sealed bid auctions are an effective form of price discovery, although possibly some modified form of auction might give a better result. In addition to the extensive international evidence that auctions have not been popular for IPOs, there is no U. An article in the Wall Street Journal cited the reasons as "broader stock-market volatility and uncertainty about the global economy have made investors wary of investing in new stocks".

Under American securities law, there are two-time windows commonly referred to as "quiet periods" during an IPO's history. The first and the one linked above is the period of time following the filing of the company's S-1 but before SEC staff declare the registration statement effective. During this time, issuers, company insiders, analysts, and other parties are legally restricted in their ability to discuss or promote the upcoming IPO U.

Securities and Exchange Commission, The other "quiet period" refers to a period of 10 calendar days following an IPO's first day of public trading. When the quiet period is over, generally the underwriters will initiate research coverage on the firm. A three-day waiting period exists for any member that has acted as a manager or co-manager in a secondary offering. Not all IPOs are eligible for delivery settlement through the DTC system , which would then either require the physical delivery of the stock certificates to the clearing agent bank's custodian or a delivery versus payment DVP arrangement with the selling group firm.

A "stag" is a party or individual who subscribes to the new issue expecting the price of the stock to rise immediately upon the start of trading. Thus, stag profit is the financial gain accumulated by the party or individual resulting from the value of the shares rising. This term is more popular in the United Kingdom than in the United States. In the US, such investors are usually called flippers, because they get shares in the offering and then immediately turn around " flipping " or selling them on the first day of trading.

From Wikipedia, the free encyclopedia. Type of securities offering. For other uses, see IPO disambiguation. This article has multiple issues. Please help improve it or discuss these issues on the talk page. Learn how and when to remove these template messages. This section may need to be rewritten to comply with Wikipedia's quality standards. You can help. The talk page may contain suggestions.

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Main article: Quiet period. Boston University Law Review. The Washington Post. Retrieved 27 November Geert Yale School of Forestry and Environmental Studies, chapter 1, pp. Many of the financial products or instruments that we see today emerged during a relatively short period. In particular, merchants and bankers developed what we would today call securitization. Mutual funds and various other forms of structured finance that still exist today emerged in the 17th and 18th centuries in Holland.

Retrieved 12 July Retrieved 30 July Companies Go Public". Transaction Advisors. ISSN Securities and Exchange Commission. Retrieved 12 December Securities Trading Corporation. Wright, "Reforming the U. In Jonathan Koppell ed. Retrieved 10 December Retrieved 22 July Retrieved 23 July The Wall Street Journal. Retrieved 16 October Slate Magazine. The New York Times. Working Knowledge. Harvard Business School.

Queen's University Law and Economics Workshop. Queen's University. Retrieved 21 July Arab News. Retrieved 15 January Wall Street Journal. Financial Times. Retrieved 26 November Retrieved 26 December Gregoriou, Greg Butterworth-Heineman, an imprint of Elsevier. ISBN Archived from the original on 14 March Retrieved 15 June Goergen, M. Managerial Finance. Loughran, T. Financial Management. Review of Financial Studies. Khurshed, A.

Applied Financial Economics. S2CID Bradley, D. Journal of Finance. CiteSeerX Journal of Business Finance and Accounting. SSRN Mudambi, R. Journal of Business Venturing. Drucker, Steven; Puri, M. In Eckbo, B. Handbook of Corporate Finance.

Boston: Elsevier. Archived from the original on 21 August Retrieved 14 September Mondo Visione web site: Chambers, Clem. Published Accessed 21 September Friesen, Geoffrey C. Anderlini, Jamil 13 August Retrieved 13 August Hu, Bei and Vannucci, Cecile. Retrieved "Pricing the 'biggest IPO in history' ".

The company issues its shares on an IPO date. Capital from the primary issuance to shareholders is received as cash and recorded as stockholders' equity on the balance sheet. Post IPO. Some post-IPO provisions may be instituted. Underwriters may have a specified time frame to buy an additional amount of shares after the initial public offering IPO date.

Meanwhile, certain investors may be subject to quiet periods. The primary objective of an IPO is to raise capital for a business. It can also come with other advantages, but also disadvantages. One of the key advantages is that the company gets access to investment from the entire investing public to raise capital.

Increased transparency that comes with required quarterly reporting can usually help a company receive more favorable credit borrowing terms than a private company. Companies may confront several disadvantages to going public and potentially choose alternative strategies. Some of the major disadvantages include the fact that IPOs are expensive, and the costs of maintaining a public company are ongoing and usually unrelated to the other costs of doing business.

Fluctuations in a company's share price can be a distraction for management which may be compensated and evaluated based on stock performance rather than real financial results. As well, the company becomes required to disclose financial, accounting, tax, and other business information. During these disclosures, it may have to publicly reveal secrets and business methods that could help competitors.

Rigid leadership and governance by the board of directors can make it more difficult to retain good managers willing to take risks. Remaining private is always an option. Instead of going public, companies may also solicit bids for a buyout. Additionally, there can be some alternatives that companies may explore. Can raise additional funds in the future through secondary offerings.

Attracts and retains better management and skilled employees through liquid stock equity participation e. IPOs can give a company a lower cost of capital for both equity and debt. A direct listing is when an IPO is conducted without any underwriters.

Direct listings skip the underwriting process, which means the issuer has more risk if the offering does not do well, but issuers also may benefit from a higher share price. A direct offering is usually only feasible for a company with a well-known brand and an attractive business. In a Dutch auction , an IPO price is not set. Potential buyers can bid for the shares they want and the price they are willing to pay. The bidders who were willing to pay the highest price are then allocated the shares available.

When a company decides to raise money via an IPO it is only after careful consideration and analysis that this particular exit strategy will maximize the returns of early investors and raise the most capital for the business.

Therefore, when the IPO decision is reached, the prospects for future growth are likely to be high, and many public investors will line up to get their hands on some shares for the first time. IPOs are usually discounted to ensure sales, which makes them even more attractive, especially when they generate a lot of buyers from the primary issuance.

Initially, the price of the IPO is usually set by the underwriters through their pre-marketing process. At its core, the IPO price is based on the valuation of the company using fundamental techniques. Underwriters and interested investors look at this value on a per-share basis.

Other methods that may be used for setting the price include equity value, enterprise value , comparable firm adjustments, and more. The underwriters do factor in demand but they also typically discount the price to ensure success on the IPO day.

It can be quite hard to analyze the fundamentals and technicals of an IPO issuance. Investors will watch news headlines but the main source for information should be the prospectus , which is available as soon as the company files its S-1 Registration. The prospectus provides a lot of useful information. Investors should pay special attention to the management team and their commentary as well as the quality of the underwriters and the specifics of the deal.

Successful IPOs will typically be supported by big investment banks that can promote a new issue well. Overall, the road to an IPO is a very long one. As such, public investors building interest can follow developing headlines and other information along the way to help supplement their assessment of the best and potential offering price. All investors can participate but individual investors specifically must have trading access in place.

The most common way for an individual investor to get shares is to have an account with a brokerage platform that itself has received an allocation and wishes to share it with its clients. Several factors may affect the return from an IPO which is often closely watched by investors.

Some IPOs may be overly-hyped by investment banks which can lead to initial losses. However, the majority of IPOs are known for gaining in short-term trading as they become introduced to the public. There are a few key considerations for IPO performance. If you look at the charts following many IPOs, you'll notice that after a few months the stock takes a steep downturn. This is often because of the expiration of the lock-up period.

When a company goes public, the underwriters make company insiders such as officials and employees sign a lock-up agreement. Lock-up agreements are legally binding contracts between the underwriters and insiders of the company, prohibiting them from selling any shares of stock for a specified period. The period can range anywhere from three to 24 months. Ninety days is the minimum period stated under Rule SEC law but the lock-up specified by the underwriters can last much longer.

The problem is, when lockups expire, all the insiders are permitted to sell their stock. The result is a rush of people trying to sell their stock to realize their profit. This excess supply can put severe downward pressure on the stock price. Some investment banks include waiting periods in their offering terms. This sets aside some shares for purchase after a specific period. The price may increase if this allocation is bought by the underwriters and decrease if not.

Flipping is the practice of reselling an IPO stock in the first few days to earn a quick profit. It is common when the stock is discounted and soars on its first day of trading. Closely related to a traditional IPO is when an existing company spins off a part of the business as its standalone entity, creating tracking stocks.

The rationale behind spin-offs and the creation of tracking stocks is that in some cases individual divisions of a company can be worth more separately than as a whole. For example, if a division has high growth potential but large current losses within an otherwise slowly growing company, it may be worthwhile to carve it out and keep the parent company as a large shareholder then let it raise additional capital from an IPO.

In general, a spin-off of an existing company provides investors with a lot of information about the parent company and its stake in the divesting company. More information available for potential investors is usually better than less and so savvy investors may find good opportunities from this type of scenario. Spin-offs can usually experience less initial volatility because investors have more awareness.

IPOs are known for having volatile opening day returns that can attract investors looking to benefit from the discounts involved. Over the long term, an IPO's price will settle into a steady value, which can be followed by traditional stock price metrics like moving averages. Investors who like the IPO opportunity but may not want to take the individual stock risk may look into managed funds focused on IPO universes.

An IPO is essentially a fundraising method used by large companies, in which the company sells its shares to the public for the first time. Some of the main motivations for undertaking an IPO include: raising capital from the sale of the shares, providing liquidity to company founders and early investors, and taking advantage of a higher valuation. Oftentimes, there will be more demand than supply for a new IPO.

For this reason, there is no guarantee that all investors interested in an IPO will be able to purchase shares. Another option is to invest through a mutual fund or another investment vehicle that focuses on IPOs. IPOs tend to garner a lot of media attention, some of which is deliberately cultivated by the company going public. Generally speaking, IPOs are popular among investors because they tend to produce volatile price movements on the day of the IPO and shortly thereafter.

This can occasionally produce large gains, although it can also produce large losses. Ultimately, investors should judge each IPO according to the prospectus of the company going public, as well as their financial circumstances and risk tolerance. Securities and Exchange Commission. Accessed Oct. Company News. Your Money. Personal Finance. Your Practice.