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For its first 8 years, Facebook, Inc., operated as a privately held corporation. The company had relatively few shareholders and had no obligation to report its financial results to the public or to regulators such as the Securities and Exchange Commission (SEC), which allowed co-founder Mark Zuckerberg to focus his energy on building Facebook's rapidly growing business. Just 6 years after its inception in Zuckerberg's Harvard dorm room, Facebook's user base surpassed the 500 million mark, and pressure mounted on Zuckerberg to take the company public" via an initial public offering (IPO) of common stock. Such a move would allow Facebook's early investors to cash out and would make dozens of Facebook's employees rich, none more so than Zuckerberg himself. On May 18, 2012, Facebook launched its IPO by selling 421 million shares at a price of $38 per share. Almost immediately the price of Facebook stock rose as high as $45 per share, but there were signs of trouble. Technical problems on the NASDAQ stock exchange caused millions of orders for Facebook shares to be wrongly placed. Even worse, during the first month after Facebook's IPO, its share price fell to $30. Investors filed dozens of lawsuits, alleging that they were harmed not only by NASDAQ's trading glitches, but also by the selective release of unfavorable financial information by Facebook's investment bankers and its senior managers. Once firms "go public" by selling shares to the public, they face a host of new pressures that private companies do not, so why do they go public at all? Often it is to provide an exit strategy for private investors, gain access to investment capital, establish a market price for the firm's shares, gain public exposure, or all those reasons. Going public helps firms grow, but that and other benefits of public ownership must be weighed against the costs of doing so. A public firm's managers work for and are responsible to the firm's investors, and government regulations require firms to provide investors with frequent reports disclosing material information about the firm's performance. The regulatory demands placed on managers of public firms can sometimes distract managers from important aspects of running their businesses. This chapter will highlight the trade- offs faced by financial managers as they make decisions intended to maximize the value of their firms. 1. What was the percentage drop in Facebook shares in its first year as a public company? 2. Just after the IPO, Facebook's CEO, Mark Zuckerberg, owned 443 million shares. What was the total value of his Facebook stock immediately after the IPO and then again one year later? How much wealth did Zuckerberg personally lose over the year