Initial Public Offerings (Essay Sample)

Initial Public Offer
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Facebook is a well-established and reputable firm in the Tech. Industry. The company went public on February 1, 2012 as part of a requirement by the Securities and Exchange Commission (SEC) for all companies that have gone past the set 500 shareholders threshold. The company prospectus indicated that it had a monthly user base of 845 million and daily likes and comments of over 2.7 billion. The founder Mark Zuckerberg was to retain a 22% ownership stake and control 57% voting rights. The prospectus also indicated the intent of the company to raise US$ 5 billion, arguably the largest IPO in tech history to date and largest in Internet history.
According to Bochner et al. (2006), one major foreign exchange risk that may be experienced during an IPO is litigation risk. The 1933 Securities Act Section 11 gives investors the right to litigate against underwriters and issuers for share price declines below the offer price as a result of material omissions in the prospectus (Beatty et al., 1986). The two most viable criteria to hedge against this risk are through underpricing so as to lessen damages, or by increasing disclosure in order to lessen the possibility of omission. This two litigation measures act alternatively and thus a firm that will probably commit material omiss...