Paper Topic:

Under pricing of Initial Public Offering in the UK: A comparison between the Main market and the AIM market

Introduction

Careful planning is required in initial public offerings (IPO ) and a company must make the right market choice . There are a number of factors a company must consider in this process . The company must look into how accessible the potential investors are . Pro of benchmarked companies on the stock exchange is as important as the requirements to the entry of the company into the market and the level of monitoring going on and requirements for disclosure . By their very nature , a quoted company 's shares are available to the public . The

main aim of the company when it advertises for the shares is to reach as many investors as possible . Not only have to have that but the investors needed to be convinced that the company is worth investing in . The company therefore avails detailed financial and management information before being given admission to the market

In bid to attract many customers with a lower price , the company ends up quoting a price of the share far much below its market value thus under pricing it . This under pricing leads to anomalous first-day trading profits in initial public offerings as the share prices shoot abnormally on the first day as they are floated on the stocks market . This initial return , it 's understood , is more often money left on the table because the shares could still have been sold at a higher price hence raising more funds for the same stake in the company

We have seen that the company must choose the type of market to offload its share when it is planning its initial public offering . There are several markets in which this offering can take place . However , there are several factors that will determine the primary decision made by the company . These factors are influenced by the fact that the markets provide the company with an opportunity to familiarize itself in the midst of the disclosure specifications and functionalities in exposing for communal companies . As a point of concern , the size of the Company is very important . This is because smaller companies will find that AIM market is best for them while largest companies will find the Main Market suitable . Hence the size of the company is an important factor in determination of which market to offload the shares . Another factor is the age of the company since it 's more usual to float shares on the AIM market while it would need to have operated for at least three years to enter the Main market

The time and cost are very important because the drain on the management time and the floating cost must be considered . As a general rule , if the market is bigger then the disclosure will be more onerous and the professional costs will also be higher . Lastly , the company 's objectives of seeking the floatation must be put into consideration because the conflicting needs of the business and the owners have a direct impact on the choice of markets , float method...

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