An initial public offering (IPO) is the first time a company registers securities with the U.S. Securities and Exchange Commission (SEC) and offers shares to public investors on a national exchange. In modern U.S. practice, IPOs are conducted under the Securities Act of 1933 via a registration statement (commonly Form S-1) and a prospectus provided to investors. The SEC frames an IPO as the first public sale of stock, emphasizing disclosure and investor protection rather than "approval" of the deal's merits.

Academic finance has studied IPOs for decades. A canonical synthesis by Jay R. Ritter and Ivo Welch (2002) reviews the history and evidence: IPO activity tends to be cyclical, first-day "pops" are common, and long-run performance varies across eras and industries.

Firms go public for multiple reasons beyond "raising cash." A widely cited empirical study of Italian firms by Pagano, Panetta, and Zingales (1998) finds that companies often IPO after periods of heavy investment—using the public market to rebalance capital structure, lower the cost of debt, and allow partial cash-out by existing owners—more than to finance brand-new investment.

The SEC likewise notes that motivations extend beyond funding needs, citing Pagano et al. in its 2020 Report to Congress on offering exemptions.

Venture capital (VC) backing also shapes the "why." VC participation can certify quality to the market, lowering information asymmetry: the classic evidence (Megginson & Weiss, 1991) shows that VC-backed IPOs have lower initial returns and fees, consistent with a certification role.

Underwriters advise on timing, structure, valuation, marketing, and stabilization. Their reputation and methods affect outcomes (pricing, allocations, spreads). The bookbuilding literature (Benveniste & Spindt, 1989) and survey reviews (Ritter & Welch, 2002) emphasize that underwriter-investor relationships and information production are central to discovering price while managing incentives.

IPOs are cyclical. Hot markets often feature higher first-day returns and greater issuance. Over longer horizons, average post-IPO performance can disappoint relative to benchmarks, with strong variation across size, industry, and cycle (summarized in Ritter & Welch, 2002; and updated long-run return tables through 2023).

Exchanges determine eligibility. Nasdaq's 2025 Initial Listing Guide and NYSE's standards summary outline quantitative criteria (e.g., shareholder counts, public float, market value, price tests) and governance requirements. Exchanges retain broad discretion to deny listings to protect investors and the public interest.

Listing standards evolve. For example, in 2025 Nasdaq gained SEC approval for new liquidity benchmarks for certain listings (effective April 11, 2025), part of an ongoing tightening cycle around thinly traded or higher-risk listings.

IPOs are not just financing events; they are disclosure-and-price-discovery institutions. The registration process publicly codifies a company's risks and prospects; underwriters' bookbuilding aggregates investor information; first-day pricing reflects the interplay of incentives (e.g., Rock's winner's-curse logic) and market conditions; VCs and insiders obtain partial liquidity; and exchanges provide public trading venues under listing and governance standards. Over the long run, outcomes vary: some vintages flourish; others lag benchmarks—reminding issuers and investors to treat IPOs as beginnings, not finishes.