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The co-managers of an IPO pricing have an incentive to set the highest price because their...

The co-managers of an IPO pricing have an incentive to set the highest price because their underwriting discount is computed on the basis of this price. True or False?

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Answer #1

Investment banks underwrite the IPO issue and resposible for IPO pricing. in return they charge fee (under writing fee ususally 5% of offer price) from company. but at high price their is low chance of sell all stock of issue. So investment banks always issue stock at fair price so that all stocks must be subscribe. but if they issue at higher price then they must earn higher underwriting discount and manager of comapny get incentive.

So, The co-managers of an IPO pricing have an incentive to set the highest price because their underwriting discount is computed on the basis of this price.

Statement is true.

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