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Corporate Finance/the corporate form and initial public offerings
Finance & Accounting
Pages 7 (1757 words)
Corporate Finance / the corporate form and initial public offerings Table of Contents Ans. (b) 4 Ans. (c) 6 Ans. (d) 8 References 10 Ans. (a) Initial Public Offering is the process of offering the stocks and shares by a company to the general public which intends to raise capital for the first time.
The sellers are more knowledgeable than the buyers so for the convenience of the buyers they are supported by intermediaries who are trustworthy and who would advice the buyers whether the sellers are reliable or not. Such intermediaries are popularly known as underwriters. Corneilli and Glodreich observed that the information knowledge of the buyers and sellers are very different, this difference in information is known as information asymmetric. These asymmetric can be removed by the book building method. Book Building is one of the ways in which the shares can be offered to the public. This process generates captures and records investor demands for shares during the initial public offering. In this method the issuer basically appoints an investment bank to act as an underwriter (Gregoriou, 2011, p.219). It is the process in which an underwriter “build a book” by taking orders from the fund manager or from the buyers or the institutional investors indicating the number of shares and the price they are willing to pay for the shares. By this the price is set according to the coordination and the knowledge of both the parties namely the buyer and the seller. The investment bankers offer more shares to the bidders who provide maximum information in their bids. ...
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