In the two months since Facebook's hyped debut on the Nasdaq, its share price has hovered between $25 and $33. Given that its launch price of $38 per share was meant to be underpriced in line with the standard industry practice, Facebook and its underwriters still have some work to do to convince skeptical shareholders that its valuation is worth it.
"The worst thing that could happen to you if you are a bank is to misprice something so badly that you will get investors who pay too much: to put something out at $25 and have it worth $15 in two weeks. That destroys confidence. Everybody you sold it to says, I'll never buy from you again!"
So says John Reed, former chairman of the New York Stock Exchange, in the article, "On Going Public: To Sink or Swim When Floating Stock," published in Issue 13 of IESE Insight magazine.
IESE Prof. Miguel Cantillo, writing with Nicholas Corbishley, charts how IPO activity has evolved up until Facebook's recent launch, and the myriad issues involved in going public: the motivations behind IPOs, how they work in practice, what companies can hope to gain from going public, and, just as importantly, the risks they might face by doing so.
The article also comments on the rise of stock exchanges in Asia, which signals a globalization of wealth and a dispersion of market activities away from the U.S. and European markets.
That said, even in Asia, which has led IPO activity for the past five years, investor jitters owing to global financial turbulence have dampened the appetite for initial public offerings.
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