The Art of the Initial Public Offering by Shayndi Raice - Article Example

The Art of the IPO by Shayndi Raice Article Summary The entry of Facebook and other new firms in the market will create a new dimension in the stock market. Although their offers will be modest, the pricing of shares will have to be correct or else the firm loses their dominance in the market. Pricing of the shares too high will enable the company to collect a lot of money. However, the drop will alienate potential long-term investors and demoralize the subordinates. On the other hand, pricing them too high will attract the attention of the people and increase the buying frenzy (Raice, 2012). Finding a correct balance is critical in supporting the company. Bankers state that pricing an offering for the company to register quick gains once the trading begins is the best approach. This is because the strategy enables the company to improve its relationship with the big investors while at the same improving the reputation of the company in the market. However, too much of hype is detrimental to the success of the company in the market. This is because the investors who buy the shares during the first week are likely to sell them very quickly in order to make high returns. In order to avoid a runaway stock, the company should control the number of shares it offers in the market. This is to reduce the demand which might increase the prices. In addition, the company should control the information being released in the market to avoid creating unrealistic expectations among the investors (Raice, 2012). Some companies might prefer to raise as much money as possible once they introduce the shares in the market. This approach can work with investors who are likely to be patient. However, there is a high risk that the prices of the shares might decline in the first weeks of trading. Therefore, creating a strong investor relationship is very important in securing the future of the company. Therefore, the company should communicate effectively, observe the ethical standards, comply with the set rules, and audit its operations in order to identify the need to make changes (Raice, 2012). Discussion With the entry of the internet in the market, it is becoming very hard for the companies to control the pop associated with entering in the stock market. However, companies need to audit their books in order to know their worth before releasing the information to the market. This is to ensure that they have a strong base to support their operations in case the shares fail to raise the expected amount of money. This has seen many companies fail to reach the target as many of the initial investors who buy a small number of shares end up disposing them within the first week as they seek for high returns. This increases the supply of the shares in the market, an aspect that reduces their prices significantly. Therefore, companies need to put check and balances in order to avoid making these mistakes. Opinion Companies need to have a long-term approach when entering the stock market. Although many organizations use the money accrued to improve the performance of the business, the best way of accumulating this money is through a slow process that involves attractive the loyalty of the big investors. As a result, companies should balance the forces of supply and demand in order to avoid overpricing its shares. In addition, they should ensure that the subordinates are well motivated before embarking on the process of listing its shares in the stock market. Although the article has highlighted the pros and cons of stock buyouts, the article has missed to touch on the management issues that might affect the prices of the stocks in the market. For instance, internal factors such as conflicts and external forces such as competition may affect the company even when people have high expectations. Therefore, companies should address these issues in order to provide the investors with correct information. No More Executive Bonuses! By Henry Mintzberg Summary of the article The executives need to set an example to the rest of the employees. However, when it comes to payment of the bonuses, the opposite happens. Large corporations have been undermined by executive bonuses which represent the most prominent form of legal corruption. Many of these executives have failed to demonstrate leadership when it comes to the awarding of the bonuses. They play with the stockholders money (Mintzberg, 2012). In addition, they collect bonuses for just signing deals while the employees have done the paperwork. Companies have become more complicated especially with their increasing sizes. Therefore, their intrinsic value has become more important for them to maintain their competitive advantage in the market. Accountants are no longer in a position to challenge their bosses. Instead, they act to please the executives who are hungry for more money. The same problem is facing the stock-market analysts, investors, and potential buyers of the firm. This explains the reasons why many mergers have failed to succeed. Initially, it was thought that the firm’s short-term performance was a parameter to measure the long-term health of a firm. However, through various tests by the insurance, this measure has been objected. Currently, there is an attempt to link bonuses with the long-term health of the business. Nevertheless, there are some issues that have arisen concerning the best way to measure the performance of the -chief executives. Some propose three years while others prefer ten years. However, another school of thought argues that the chief executive can be evaluated using the number the long-term performance of the company especially in the stock market (Mintzberg, 2012). However, who opposes the idea state that the decision that made the company to succeed in the market might have emanated from the previous chief executive. The chief executive might be lucky to land on a company that has a strong organizational culture, history, and a strong market presence. In addition, a CEO might have a strong working force which completes all the work and he is left to sign the document. Nevertheless, it is hard to measure the success of a complex multinational company for around ten years (Mintzberg, 2012). As a result, success of the company should not be attributed to a single person. Instead, bonuses should be given to all employees because they contribute immensely towards the success of the company. Discussion The CEO has an important role of making critical decisions that affects the performance of the company in the market. However, organization is made of a group of people who work together as a unit in order to achieve the set goals and objectives. Therefore, bonuses should be distributed evenly according to all subordinates according to their contribution towards the success of the company. Opinion The article has failed to address the pressure that is put on CEO in case the company is not performing very well. In addition, the CEO makes critical decision that determines the future success of the business. Nevertheless, the strength of the article is on its analysis of the critical decisions that need to be made to determine the performance of the CEO. However, the author should address the issue of risks and uncertainties that face CEOs and the magnitude of the decisions that they make. These are some of the issues that make the CEO to be given bonuses when the organization records positive results. The Pros and Cons of Stock Buybacks by Maxwell Murphy Summary of the article Companies are sharing very little returns with the business owners who are the shareholders. There have been some suggestions that the companies should raise their dividends. Others argue that the money should be used for acquisition or reinvestment in the same business. Different analysts argues that although some companies benefits immensely from share repurchases, heavy buyouts make it hard for the shareholders to get value for their money over time. One research indicated that companies that invested their money on research and acquisition got more returns than those that repurchased their shares (Murphy, 2012). Research indicates that the prices of shares increase immediately after the repurchase announcement is made. Therefore, only the short-term owners benefits from the repurchase because at this time the prices are high. In addition, they destroy the value of long-term shareholders (Murphy, 2012). Discussion Shareholders invest their money on a company in order to gain returns. However, even after the company makes a lot of money, they are hesitant to transfer the money to the real owners of the business. Many companies have used this money to repurchase its shares, an aspect that hikes their prices. However, this hikes the prices of the shares, thereby, attracting more investors. However, these investors use the short period to make money and exit the market. This hurts the long-term investors as the shares ends up losing value. Opinion Companies should diversify their source of income rather than repurchasing shares. This is because reinvesting the shares affects the value of shares and makes the long-term investors to sell their shares in order to make profits. The article has highlighted the pros and cons of stock buyouts. However, it should have also analyzed the measures that should be taken to protect the interests of the long-term investors. In addition, the author should have highlighted the benefits of retaining the capital rather than distributing it to the shareholders. For instance, he could have stated that the capital can be used to create a barrier of entry to any other interested investors. References Mintzberg, H. (2012). No More Executive Bonuses - WSJ. Retrieved from http://www.wsj.com/articles/SB10001424052970203922804578080670062571256 Murphy, M. (2012). The Pros and Cons of Stock Buybacks - WSJ. Retrieved from http://www.wsj.com/articles/SB10001424052970203824904577213891035614390 Raice, S. (2012). How to Price an IPO - WSJ. Retrieved from http://www.wsj.com/articles/SB10001424052970203922804578080763596406112 Read More