What are the pros and cons of company's IPO Should company be floated Essay

What are the pros and cons of beau mondes initial public straitsing Should lodge be floated at all - Essay characterAlthough the aim of growth is to bring benefits to the party, there exist both pros and cons that can mount from this process of handout public (Helwege 2004, p.541). Pros and cons of Initial Public Offer (IPO) There are several advantages that accrue to a company by going public. As mentioned above, the principal advantage is the financial benefit through raising capital. An IPO adds a value on the companys stock. In addition, those insiders retaining stock are able to sell their shares or heretofore use them as collateral (Datta 2000, p.715). Going public in like manner creates a currency type in the form of its stock, which can be used in making acquisitions. In addition, there is a mishap that the company can access the capital markets for its future financing needs. Overall, a companys debt-to-equity ratio improves considerably aft(prenominal) an initia l public offering, which indicates that the business is likely to earn more favorable loan terms from its lenders (Datta 2000, p. 716). some other advantage is the increase of public awareness of the company. IPOs normally produce more publicity by change magnitude the awareness of their products to a new group of potential customers. Subsequently this is expected to increase the companys market share. The founders can overly use the IPO as an exit strategy. Many venture capitalists engender tried this in an attempt to open up successful companies (Hao 2007, p.112). For others, the prestige associated with the public companies or a post of a director or officer of any public company has a original allure. Furthermore, going public puts the company ahead for promotion. The publicly traded companies are mostly better known than non-publicly traded ones. The company can gain publicity and a stable image by trading publicly. This makes the public companies offer a wide variety of s tock, which has a considerable potential of significant appreciation in value. Those companies leave trade publicly and portray a positive image hence attracting highly qualified personnel department at all levels of counsel. It is possible to view such companies as growth-oriented hence their duty is to answer to a board of directors and shareholders who in turn demand increased profitability as frequent as possible, and also act quickly to solve managerial problems and also replace those senior executives who are performing ailing (Benninga 2005, p.117). Although the benefits of an IPO are many, there are certain challenges. One outstanding challenge is the disclosure of cultivation to investors. There is a high cost of complying with the regulatory requirements. Other costs that will also arise include the generation of financial reporting documents and audit fees (Hao 2007, p.112). This will subject the public companies to added pressure of the market. This may force them to focus mainly on short-term results rather than their long-term growth. Since the investor is keen on profits, management will be under scrutiny. This may trigger the management to engage in questionable practices in order to increase earnings. Another setback of going public is that these public companies operate under comminuted scrutiny. There is disclosure of confidential information touching on the company including those transactions with management the course catalog divulges prior violation of security law and executive compensation. This may be confidential information be to the company that it may be reluctant to reveal. Furthermore, formalisation of the decision-making process follows and with less flexibility when the shareholders are also there. This may bring complexities to these companies. Previously, decision making was quite flexible due to the presence of few people. The company is also subject to