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Initial Public Offering

Initial Public Offering (IPO)

Definition

The process of selling stock in a corporation for the first time to the general public. IPOs are handled by investment banking firms, which study the corporation's financial situation and then decide how many shares of stock should be sold and at what price. Individual investors are sometimes shut out of IPOs because investment bankers typically dole out IPO shares to institutional customers, such as mutual funds, pension funds, banks, and insurance companies. Accordingly, IPOs have received particular attention in recent years because class action lawsuits against corporate directors and officers have arisen in conjunction with the way in which the IPOs were allocated among various parties. Such claims are known as IPO laddering claims.

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