financial market A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial market ...

s, an equity issuance is the sale of new equity or stock by a firm to

investor An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...

s. Equity issuance can involve a private sale, in which the transaction between investors and the firm takes place directly, or publicly, in which case the firm has to register the securities with the authorities and the sale takes place in an organized market, open to any registered investor, a process more akin to an

auction An auction is usually a process of buying and selling goods or services by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition ex ...

. Two common types of public equity issuance are

initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investme ...

s (IPOs) and Secondary equity offerings (SEOs or FO). This is one of the ways firms finance themselves, that is, they obtain funds from

investors An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...

in order to engage in business.

Role of investment banks

Investment bank Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...

s, such as Goldman Sachs or

Morgan Stanley Morgan Stanley is an American multinational investment management and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in more than 41 countries and more than 75,000 employees, the fir ...

are frequently

intermediaries An intermediary (or go-between) is a third party that offers intermediation services between two parties, which involves conveying messages between principals in a dispute, preventing direct contact and potential escalation of the issue. In la ...

in the equity issue process, and for some of these firms the

fee A fee is the price one pays as remuneration for rights or services. Fees usually allow for overhead, wages, costs, and markup. Traditionally, professionals in the United Kingdom (and previously the Republic of Ireland) receive a fee in cont ...

s associated with IPOs are a substantial part of their income. The role of these

bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...

s is to study the characteristics and business plans of the firm which is issuing equity and then recommend a minimum purchase price to investors. On the other hand, they are in charge of convincing investors that the purchase is a good

opportunity Opportunity may refer to: Places * Opportunity, Montana, an unincorporated community, United States * Opportunity, Nebraska, an unincorporated community, United States * Opportunity, Washington, a former census-designated place, United States * ...

and therefore the success of IPO placement partly hinges on the

reputation The reputation of a social entity (a person, a social group, an organization, or a place) is an opinion about that entity typically as a result of social evaluation on a set of criteria, such as behavior or performance. Reputation is a ubiquitous ...

of the investment bank that is doing it. Often it is done by joint stock companies to raise money.

References

{{DEFAULTSORT:Equity Issuance Initial public offering

Role of investment banks

See also

References