The ownership of a private corporation is divided in shares which are owned by shareholders. When these private corporations require more finances they have several options available including loans and issuing additional shares in private circles or venture capitalist or going public. When private firms go public Initial Public Offering is used to acquire the required finances for the new public company. The shares of the private corporation are offered to the general public at a particular price that may be equal to the par value, greater than the par value or less than the par value. If the reputation of the company in terms of growth and profitability is quite high then these shares are offered at a price higher than the par value.

In order to attract a large amount of investment shares are also offered at a discount so that investors can gain from the initial public offering. Initial public offerings have been quite common in Europe, USA and around the world and more corporations around the world go public for extra financing. The recent financial crisis has caused a downturn in the Initial Public Offering market where fewer firms go public due to decreased confidence of the general public and lack of interest in newer corporations. The complex regulatory framework of the United States of America increases the reluctance of companies to go public and consider an Initial Public Offering in the country. The regulatory framework of European countries on the other hand is quite attractive and motivates firms to go public and offer shares in Initial Public Offerings. Initial public offerings have been widely used as a tool for financing and the short and long term performance of corporations is highly dependent on the prices offered in the Initial Public Offering and the overall growth of the company after the Initial Public Offering. Initial Public Offerings have been researched quite extensively and the factors which determine the long term and short term performance of this performance have been evaluated by various researchers.