Accounting For the Success of the IPO Market Essay

Accounting For the Success of the IPO Market - Essay Example IPO refer to the first sale of stock in the security market by a private company to the public investors. Apart from raising funds, a private firm can sell IPO for other reasons. With the help of an underwriting firm the issuer provides a prospect to the public giving detailing the reasons for issuance the authorized share price as well as the worth of the issuer.2 However, in the IPO market, the investors and sellers hold different information that creates information asymmetry. The goal of this study is to examine the effects of information asymmetry between seller and buyers of IPO. Also, the document examines ways in which one can account for the success of the IPO market. Both seller and buyers encounter challenges in obtaining accurate market information due to various barriers causing information asymmetry. The availability of market information plays a crucial role in any market because it influences the behaviour of buyers.3 The information about price and quality of products and services enables the buyer to make a choice on what product to buy and at what price. However, the information about service is difficult to establish because of intangibility and concurrent production and consumption of services.4 The choice of what to purchase becomes severe due to the potential for dissimilarity in service and product quality and information asymmetry. Sometimes the search for market information is very costly and as such causes hindrance to the choices available for buyers to make.5 Not only the buyers who encounter challenges of obtaining market information but also the sellers have inaccurate reliable information about the market. For example, the seller may want to understand the behaviour of buyers, the future market trends, economic conditions and so on. Both sellers and buyers hold different sets of information which affects their behaviour in the market.6 Therefore, different sets of information regarding price, quality, specifications, performance and circumstances of transfer affect the transactions and increase cost for both parties.