Arguments that have been presented to support IPO underpricing include diminishing the risk to the underwriter who has agreed to a firm commitment underwriting.

Question

Quizplus · Accepted Answer

Underwriters often underprice IPOs to reduce their risk. By setting a lower initial price, they increase the likelihood of the IPO being successful, which minimizes their exposure since they have committed to buying any unsold shares at the offering price in a firm commitment underwriting.

Arguments That Have Been Presented to Support IPO Underpricing Include