initial public offering (IPO) The first sale of shares by a private limited company to the public. It can be difficult to set an issue price that will be low enough to attract sufficient investors to take up the whole issue and yet high enough to give the company the maximum capital. An IPO is underpriced if the issue price is less than the market price and overpriced if the issue price is greater than the market price. See OFFER FOR SALE; PUBLIC ISSUE.
EXAMPLE
In August 2004 there was a highly publicized IPO from the Internet search engine Google – the largest technology IPO in history. The issue price was initially expected to be $135 but after much speculation it was set at $85. Two days after the IPO the share price was $100.34. The 18% increase represents shareholders’ belief that Google would benefit from growth in the Internet advertising market over forthcoming years. In November 2004 the share price was over $180. Overall the IPO raised $1.7 billion for the company.
A Dictionary of Accounting. Ed Jonathan Law and Gary Owen. Oxford University Press, 2010. Oxford Reference Online. Oxford University Press. Christopher Newport University. 10 September 2012
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