The IPO decisions is often a strategical decision. It has a huge impact on the economic environment of the company and the ability to compete with rivals. So it is important to take a closer look at the strategic considerations when a company wants to go public. Draho (2004) classifies these considerations into two categories namely the industry and the competition within, and the second group pertains the effect of an IPO on the suppliers, customers and partners of the firm. \subsubsection{Industry Competition} Companies are always looking to get a competitive advantage over their rivals. An IPO can furnish them with a strategic benefit but there are a number of key factors (Draho, 2004). There is the competitive environment, the information …show more content…
One can try to produce a high quality product and hope that the market learns the true quality by time. But this is costly because while the market is learning, the firms has a low profitability (Draho, 2004). Another option is to signal the quality by doing a costly action. “The act of going public is a signal for high quality” (Draho, 2004). This signalling theory was established by Stoughton et al. (2001). An IPO is a signal of quality for serveral reasons. There are the IPO costs which are high enough to limit the pool of issuers to those of high quality. But this is not always the case. Furthermore, the other parties in the IPO process can not afford to be linked to a firm of bad quality, so they do extensive due diligence (Draho, 2004). This enhances the overall quality of the pool of issuers and increases their reputation. Another reason is explained by Maksimovic and Titman (1991). They argue that firms with a lot of debt have a lower incentive to maintain their reputation as the reputation’s payoff accrues over many periods. Public firms have an incentive to maintain their reputation because the shareholders receive the benefits (Draho, 2004). Stoughton et al. (2001) also argue that entrepreneurs prove the quality of the firm by showing there willingness to sell
...disclosing positive signal to the investor. In this case, the profitability, turnover and return to the investors are less and this is the industrial trend. In this situation, an investor has to look into the liquidity ratio and into the debt ratio. When the profit earning capacity of the company is lesser in the industry, those company should not prefer to have higher debt as this will drain their entire liquidity and will add more pressure to the company. This will increase the chances of bankruptcy and financial distress costs too. In this regard Exxon has very poor liquidity and higher debt which is adding more risk on investment. In this case, Chevron will be preferred over Exxon because, Chevron provides for similar return to investors but at lower risk, where as risk is higher in Exxon with lower return. Thus, Exxon should not be chosen for making investment.
Community treatment actions otherwise known as CTOs can be used to help many individuals with mental illness and their families. If an individual has been in the hospital under the Mental Health Act the person’s physician usually psychiatrist can arrange for community treatment order (Byrick & Renshaw, 2012). This is to help the patient comply with the doctor’s orders while not in the hospital. CTO is a doctor’s orders for a person to receive treatment as well as supervision while in the community. This is used as a care and treatment plan to help with the patients needs ranging from medications to appointments. The purpose of a CTO as stated by Byrick and Walker-Renshaw (2012) from the Mental Health Act: 33.1(3): “The purpose
Reed, R., Storrud-Barnes, S., & Jessup, L. (2012). How open innovation affects the drivers of competitive advantage: Trading the benefits of IP creation and ownership for free invention. Management Decision, 50(1), 58-73.
... and products. This will allow the company to increase its product line in order to respond to the change in consumer preferences, and also gain the right of patent.
The process of doing this cased the company to ask for help from other competitors about the exact price to offer in the market. Investors knew that the price might be among 22 to 24 per share. However, the JetBlue noticed that the IPO demand is anticipated to be more than 5.5 million. Thus, the management requested to increase its price to 25-26, this would make the management concerned to convince the shareholders that the higher price improve the company in the market. Furthermore, the company was scared if this strategy would hurt sales in future. They should decide if the higher price would improve company technique in stock
To help ease the transition over the next 12 months, the company owners have hired Heather Romine, a private consultant, to help them compile and analyze key business information needed for the IPO event. Ms. Romine is to help the business owners better understand the marketing, management, business ethics, global dimensions, accounting, financial, economic, legal, information management, research, leadership, and business integration aspects of the company. (NCU, 2014)
Being listed on a stock exchange has many advantages that a business owner of any size might consider as part of a businesses strategic plan. Moreover, when expansion and leveraging are on the business agenda, stock exchange listing can cast a wider net into the capitalization pool i.e. the potential sources of equity funding. (Berry, 2010: website)
Having a low P/E ratio with respect to the rest of the market, and the replacement cost of the firm being greater than its book value (argument 3), there is a good chance that the current stock price and the proposed offering price are too low. Although long-term debt is a better financing choice, a few of the drawbacks are pointed out. Debt holders claim profit before equity. holders, so the chances that profits may be lower than expected. increases risk to equity, may reduce or impede stock value. However, the snares are still a bit snare.
Initial Public Offerings (IPOs) are common ways for small companies to grow and expand by increasing their availability of capital. The Initial Public Offering started seeing a strong increase in popularity in the late 1990's. As a result of the growing popularity resulting in the dot com explosion, the term "IPO" became a household name. In order to understand how IPOs work, its best to first know how IPOs are created.
Five executives of highly successful companies discuss why they have made the decision to stay privately owned. Dick Forsythe of Eggers Industries Inc. says, “We stay private to maintain control.” Once a company goes public, they have to report all inside information including quarterly earnings and business strategies. It is clear that a privately held company has less pressure to increase earnings each quarter, which leads to a less stressful working environment which proves to be more effective. A major reason to stay private is that those who have contributed to the company’s success have a great pride in ownership. This is popular in family owned businesses, people want the business to remain in the family for future generations. Once a firm goes public, they often have to follow strict guidelines regarding business operations that restrict creativity. Companies looking to breach out into new economic sectors are better off remaining privately owned because of the flexibility it offers. Ridge Braunschweig, executive VP and CFO of Orion Corporation states, “A good, solid, consistent rate of growth over time is more important than short-term quarterly earnings results.” For private companies it is proven that long term-grown is better than short term growth. A major downfall when a corporation goes public is that the company’s culture changes. Employees of
The new entrants are particularly important in the context of economies of scale, government policy, capital requirements, and proprietary products/services/technologies.
A key part of an organizational strategy is to identify market opportunities by finding a niche or a gap in the marketplace that they can pursue to take their company ahead of all their competitors. An organiz...
The essentials of IPOing in Japan are the same as they in the U.S. A company must select an underwriter to take charge of their IPO, that underwriter will then oversee the pricing, quantity, and actual sale of the stock. Once the sale is complete the proceeds will be transferred to the issuer. Stock listed on Japanese exchanges are divided into sections. The first two sections make up what are called the “Main Markets”, this is where the leading large and second tier Japanese and foreign companies are listed. The first of the two sections is especially view as top market for its size, liquidity, and the volume of foreign investors (Japan Exchange Group), while the second is for medium sized companies. The third section is called the Market of The High-growth and Emerging Stocks or (MOTHERS), a trading market for companies with high growth potential. What
Introduction and Background Apple, Inc is a well known name in the computer technology world; Apple, Inc leads the computer industry in innovation thanks to the award winning desktop and notebook computer known as OS X operating system (Yoffie & Slind, 2008). This paper will focus on Apple Inc., strategic management and why is it critical to the success of the organization in meeting its goals and mission. It is therefore important to define strategic management, according to Certo, Peter & Ottensmeyer, (2005), strategic management is a continuous process that directs an organization to be appropriately suited to its internal and external environment. Strategic management benefits organizations by providing personnel, capital, helps to set standards and most importantly activates people. For an organization to have a successful strategic management plan, the mangers must learn to think strategically and have the ability to evaluate their environment and develop new ideas.
The primary importance of the stock market is to increase the country’s economy as well as the global economy. When investors invest their money in stocks, they are contributing to the growth and development of the economy. Most companies choose to get listed in order to be able to issue shares to the public to generate funds for their growth and expansion. Besides that, issuing shares to the public is less risky compared to taking loans from financial institutions where there are higher charges for interest. If the company is developing well with these inv...