Question

POINT/COUNTER-POINT:

Should Firms That Go Public Engage in International Offerings?

POINT: Yes. When a U.S. firm issues stock to the public for the first time in an initial public offering (IPO), it is naturally concerned about whether it can place all of its shares at a reasonable price. It will be able to issue its stock at a higher price by attracting more investors. It will increase its demand by spreading the stock across countries. The higher the price at which it can issue stock, the lower is its cost of using equity capital. It can also establish a global name by spreading stock across countries.

COUNTER-POINT: No. If a U.S. firm spreads its stock across different countries at the time of the IPO, there will be less publicly-traded stock in the U.S. Thus, it will not have as much liquidity in the secondary market. Investors desire stocks that they can easily sell in the secondary market, which means that they require that the stocks have liquidity. To the extent that a firm reduces its liquidity in the U.S. by spreading its stock across countries, it may not attract sufficient U.S. demand for the stock in the U.S. Thus, its efforts to create global name recognition may reduce its name recognition in the U.S.

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What did you learn from it?

Answer 1

Yes, a US firm has to issue stocks to the public for the first time in an initial public offering because

a) It will fulfil the financial requirements of the firm.

b) It will create a global name recognition for the firm.

c) It will unfold the value for the firm.

d) Going global, although a less publicly-traded stock in the US, but if the performance of the firm is good, its share value will increase due to shortage of the stock in the secondary market.

e) Issuing the public offerings will encourage other developing firms to spread their hands and spreads US firm fame.

f) It will always better to have global recognition for its business expansion.

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