Corporate Finance | Saul Ferreira Costa | 200801331 Advantages and Disadvantages of an IPO Weekly Assignment - Week 7 In this essay we will expose one of the most important moment in a firm’s lifestyle, the IPO. IPO is the abbreviation for Initial Public Offer, i.e. it’s when companies make their first stock sale in the market to the public. It’s usually make by young companies looking not only for capital to grow or expand but also for the capital ventures sell their part and close the initial investment for instance. In the IPOs the companies also have to decide if they’ll issue only common stock or preferred stock also. Clarifying and introducing our main essay theme, when the companies make their equity sale they are looking for capital in order to invest but this kind of strategy brings a lot of changes in the structure of the company also. So these changes can both take advantages and disadvantages, we will start with the good ones:  Access to a new way of financing, as we explain above, the IPO brings to the company a new way of financing their investments having the opportunity to sell their equity or issuing a new one in order to have more capital. After an IPO, the company has the opportunity to have their stock in the market for future equity based financing strategies.  Independent and objective valuation of the company by the market, with the market entrance, the company starts to have their movements, choices, investments being evaluated by all the investors, and considering an efficient market, the search for this stock will make the share price increase or decrease and that will make the company market value the most closest of the real value.  Allows changes in ownership structure, the company can decide if the share that came to the public is new issue shares and with this they will change the structure of the company or just sell the existing shares maintaining the existing structure between debt and equity.  Best corporate governance practices, All the companies has a corporate governance but it could be good or as bad as we can imagine. So the company starts to have their evolution being watched and evaluated by the market, the company will have to improve their corporate governance in order to achieve the markets standards so they cannot be harmed.  Risk diversification, with the entrance in the market the company starts to have a new way of financing witch have big differences from for instance debt and internal funds. This ways of financing are uncorrelated, not completely but with this new entrance the diversification increases and the company’ wealth too.  Prestige, it’s also good to have the company in the market, this kind of “name”, brings the company a possibility to have better conditions in banks, suppliers and other third party.