IPO Underpricing Criticism

This problem practices the logic of IPO underpricing and the tradeoff between selling shares cheaply enough to ensure a successful deal and pricing them high enough to maximize proceeds for the issuing company. It also tests whether candidates understand the roles of investment banks on both sides of the transaction, the incentives of institutional investors, and why those incentives can create a conflict of interest. Interviewers ask this because IPO pricing is a common capital markets judgment issue, and strong candidates should be able to explain how market demand, deal execution, and relationship building can affect the final price investors and the company accept.