8.5 What is public equity?
As a business grows and becomes successful in generating profits, the increase in net assets will make it an attractive investment proposition to additional external investors.
The need to increase funding is the main reason to go public (Kim and Weisbach, 2008). Alternatively, a business may have further expansion plans and might want to raise additional finance. Both can be achieved through an initial public offering (IPO) of shares through a stock exchange. The IPO decision involves a consideration of the management time and costs (fees for professional advisers) that stock exchange regulation will require.