Discussion: In order to continue to grow and succeed, many firms need additional capital for expansion, research or other activities. One way that many firms choose to access this capital is through an initial public offering of stock. In this weeks discussion, we will evaluate the advantages and disadvantages of this method of capital acquisition.

Considering this please address the following prompts in your discussion:

• For a company, should going public be the end goal of business growth?
• Why or why not?

My reply: No, for a company going public is not at all be the end of the goal of business growth. Because the purpose of going public is to raise capital quickly by reaching a large number of investors, a company can then use that cash to further the business, be it in the form of research, infrastructure, or expansion.

The companies' goals will always change from time to time at every stage of the business. There is no final goal for anything in business growthevery time a new challenge or new goal is targeted for any type of company in any industry.

A new goal of maximizing the investor's or owner's wealth starts after a company went to the public offer. Hence going public is not the end goal of business growth for a company.

How would you answer?

Teachers reply: So far, our discussion has been on IPOs. Let's quickly consider seasoned equity offerings (SEOs), which are offerings by firms that already have outstanding securities. It seems reasonable to believe that new long-term financing is arranged by firms after positive net present value projects are put together. As a consequence, when the announcement of external financing is made, the firm's market value should go up. Interestingly, this is not what happens. Stock prices tend to decline following the announcement of a new equity issue, although they tend to not change much following a debt announcement. A number of researchers have studied this issue.

Any ideas on why this might be?