The need for transparency, responsibility and accountability: The case of facebook IPO

Cervellati E. M;Di Sandro A;PIRAS, LUCA

2013-01-01

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Abstract

This paper aims to describe and critically analyze the Face book Initial Public Offering (IPO), initially focusing on the pre-IPO assessments made by underwriters, and then comparing them with the market evidence. The initial weak performance disappointed all those investors believing in a fast stock increase, causing in turn the rise of bad expectations about the company's projects. As a matter of fact, the stock trend did not reflect the enthusiasm that the financial community showed during the IPO's marketing activity or during the road show. The stock demand was far superior than the supply during all the pre-IPO activities, and even after the upward revisions of the price range. Thus, the assessment of the valuation methods used to set the offer price plays a key role to explain the reasons of the stock performance. We analyze analysts' reports to investigate the reasons of their distorted valuations. The case of the Face book IPO stresses the importance of supervision to ensure transparent financial statements and protect investors. Lack of transparency, wrong corporate culture and conflicts of interest may provoke stock crashes and damage investors and the financial system overall. Ensuring integrity of financial reporting and monitoring systems is thus essential to ensure responsibility, as well as accountability.