• 2. Why Go Public?

    This section focuses on the main costs and benefits of going and being public. First, it is important to note that only few companies qualify for public listing, as most exchanges have fairly stringent listing requirements. But even for those firms who qualify, it might be questionable if the benefits of going and being public outweigh its costs.

    While the decision to go public is often associated with direct value creation, cheaper access to financing, greater visibility, as well as operational gains and governance improvements, it also brings about significant costs. First, the process to go public itself is costly and the total costs can amount to 25% or more of the IPOs gross proceeds. In addition, there are indirect costs to be considered, including ownership dilution, greater compliance and disclosure requirements, increasing information asymmetry between the firm and its shareholders, as well as increasing managerial myopia as a result of a change in focus on quarterly earnings per share (EPS). Firms should carefully balance these costs and benefits before initiating the going public process. In fact it seems that the costs have recently outweighed the benefits, as the number of publicly traded firms has decreased significantly since the late 1990ies.

1. Introduction3. The IPO Process