An IPO (Initial Public Offering) is the process through which a company raises capital by offering its shares to the general public for the first time. Through this, companies can secure growth funds, and investors have the opportunity to acquire shares at the initial stage of listing. However, IPO investments come with both potential returns and associated risks.
IPO is a critical step in the process of a company going public. It is a procedure that companies must undergo to raise external funds using the capital market while being unlisted. After submitting a securities registration statement to the Financial Supervisory Service and obtaining approval from the Financial Services Commission, the stock subscription is carried out for general investors through an underwriter. Subsequently, the stock can be freely traded on the stock exchange on the listing day.
The allocation of stocks in the subscription process varies depending on the competition rate and allocation method. Historically, proportionate allocation was common, but recently the equal distribution system has been introduced to give small investors a chance. This approach allows for the allocation of a minimum number of shares even with a small subscription amount, increasing investment accessibility. However, higher competition rates naturally reduce the actual allocation of stocks.
For example, if a company offers 1 million shares at 50,000 won per share, and the subscription competition rate is 100:1, an investor would receive only 1% of the shares they applied for. Therefore, despite investing a large sum in the subscription, the actual number of shares one can secure might be very limited.
The attractiveness of IPOs is well reflected in the phenomenon known as ‘Dda-Sang’ on the first day of listing. ‘Dda-Sang’ describes a trend where the opening price is set at twice the IPO price, and then reaches the daily upper limit price. Investors can achieve a 160% profit in just one day. In 2020 and 2021, cases like Kakao Games and SK Bioscience demonstrated high interest among personal investors. However, not all companies experience the same trend. There are cases of ‘IPO flop’ where the stock price falls below the IPO price.
From a company’s perspective, issuing an IPO is a crucial platform for growth. During their unlisted period, companies had to rely on bank loans or private investments, but through listing, they can directly secure funds from the capital market. This capital can be the foundation for research and development, business expansion, and overseas ventures. However, setting an excessively high IPO price compared to the company’s value might lead to a decline in stock prices after the listing, increasing investor dissatisfaction.
For investors, IPOs are both opportunities and risks. Many expect substantial returns just from the subscription, but for long-term investments after listing, company performance, industry outlook, and market conditions are essential factors. Insight is needed not just for short-term surges but in assessing a company’s growth potential and stability.
To ensure fairness and transparency in IPOs, financial authorities have been enhancing the system. Expanded equal allocation, shortened refund periods, and improvements in the deposit system have strengthened investor protection measures. However, strong influence from institutional investors in the IPO price determination process and difficulties for general investors in accessing sufficient information remain challenges.
IPOs are not merely an investment tool but a starting point connecting companies and individuals within the capital market. Investors should consider company value and risks alongside potential short-term returns. Companies also benefit from earning market trust, which is advantageous for long-term capital acquisition.