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by valuearb 2165 days ago
The underpricing pop disappears faster than a fart in the wind. Underpricing in IPOs is direct theft of value from shareholders and employees to investment banks and their clients, and provides zero value for the company.
1 comments

Why does it persist?

I can think of three non-exclusive possibilities:

* Market power of banks

* Corruption of the stock-compensated managers who benefit from the pop

* Genuine or perceived benefit to the company in further price raising. (Mentioned above)

There's an (also non-exclusive) argument that it's a fair price for the risk that IPO buyers are taking. IPOs do "fail" sometimes, so the pop isn't as great a risk-adjusted return as it looks.