A Guide to the Initial Public Offering Process
Katrina Ellis
(kle3@cornel.edu)
Roni Michaely
(rm34@cornell.edu)
and
Maureen O’Hara
(mo19@cornell.edu)

January 1999

*All Authors are from Cornell University, Johnson Graduate School of Management,
Cornell University Ithaca NY 14853. Michaely is also affiliated with Tel-Aviv University.

A Guide to the Initial Public Offering Process
A milestone for any company is the issuance of publicly traded stock. While the motivations for an initial public offering are straightforward, the mechanism for doing so is complex. In this paper, we outline the process by which companies are brought to market in an initial public offering. Our goals here are to delineate the specific steps
It is important to note that there is no guarantee of the final offering price (and, in most cases, no mention of any valuation) in the letter of intent. The letter of intent remains

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in force until the Underwriting Agreement is executed at pricing. Only then is the underwriter firmly committed to buy the securities at a specific price from the issuer. By that point, the underwriter has good indications on how successful the deal is and at what price the market will be willing to buy the deal. This knowledge allows the underwriter to determine a price for the issue.
The Securities Act of 1933 mandates that the company and its counsel draft a registration statement for filing with the SEC, based upon an outline frequently provided by the lead underwriter. It usually takes several weeks and many meetings of the working group (the company management, its counsel and auditors, the underwriters, the underwriters’ counsel and accountants) before the registration statement is ready to file.
The registration statement is circumscribed by Section 5 of the Act, which gives specific requirements for the registration statement.1 The registration statement consists of two parts: the prospectus, which must be furnished to every purchaser of the securities, and
“Part II” which contains information that need not be furnished to the public but is made available for public inspection by the SEC.
The purpose of the registration and