Question

What does IPO underpricing refer to? When in recent decades has it been most severe? What...

What does IPO underpricing refer to? When in recent decades has it been most severe? What are some reasons that underwriters might want to underprice their IPOs? On the other hand, what might be some problems with this approach?

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Answer #1

IPO refers to Initial Public Offer and underpricing refers to Pricing of shares lower than the market value. Hence, IPO Underpricing refers to the listing of the initial issue of the company at the rate below the market value of the share.

Underwriters does so to make the shares feasible for every investor to invest in. Not every share is approachable to the small investors. So the motive of the IPO Underpricing is to make the issue approachable financially to small and big investors both.Thereby, knocking the opportunities for potential small investors and grabing small pockets of many investors.

The problem can definitely be that the big investors doesnot look these IPO's and show less interest in investing them and hence the issuer will not be able to collect fund in one go.

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