Corporate Finance: A discussion on Google's IPO - Essay Example

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Corporate Finance: A discussion on Google's IPO

Dess (2012) identifies four financial theories that scholars can use to explain the prices of the shares by Google during their IPO. These theories are the market timing theory, the efficient market hypothesis theory, the prospects theory, and the game theory. Dess (2012) denotes the prospectus theory explains the behavior of the people in relation to the gains they are going to make. This theory denotes that individuals will always make decisions through a perception of the gains they expect to make. Bradley and Bradley (2012) observe that in a stock, a trader can either gain or loss. This is dependent on the changes of the stock prices under consideration. Hattersley (2012) denotes that investors quoted low prices for Google because of the profits they wanted to make. They knew that Google is a very profitable company, and in the long run, the prices of the shares of the company will increase. They will in turn make profits. Bradley and Bradley (2012) observe that investors were right in their prediction since the prices of the company sold at 106 dollars per share at the end of the trading. Dess (2012) supports this fact with another financial theory referred to as efficient market hypothesis theory. According to this theory, it is practically impossible to a company to under price, or over price its shares at the stock market. ...Show more

Summary

In 2004, Google Incl rolled out its shares to the stock exchange through a public auction. At the opening of the market, the shares of the company traded at 85 dollars per share. Arthur (2012) observes that this price was very low…
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