[nemanja]

This is pretty non-sensical. Banks are incentivized to price IPOs at the highest possible price, their comps are directly linked to the proceeds.

If IPO pop was something nefarious, how do you explain IPO pop of Goldman Sachs stock? They ran their own IPO and you can be sure as hell that partners didn't want to leave any money on the table.

In general, IPO pop is an interesting phenomenon and it's not fully explained in the literature.

[thrill]

It's easily explained by accepting that the IPO price is a guess in the first place, and that the negative publicly of guessing wrong and having a significant IPO decrease is more professionally embarrassing than having an increase.

[TearsInTheRain]

Dont the bankers go through a discovery process where they find buyers pre-IPO? Its not like a blind guess

[rocho]

Those buyers are institutional investors and they get a huge discount.

[cowsandmilk]

> They ran their own IPO and you can be sure as hell that partners didn't want to leave any money on the table.

The optimal return for partners probably is giving the institutional investors a pop on even your own IPO so you keep them as investors for future IPOs where you are collecting fees. When the institutional investors lose money on an IPO, are they going to come back to you for the next one?

[pbreit]

All the money is made by handing the bank's best customers massive instant gains.

[anonu]

The answer, like most things in life, lies in between.

Yes, in an ideal world you "price it right" and on IPO day the stock doesnt move up or down from the opening price.

Optically, it looks a lot better to price low and have the stock rise.

Additionally, there is something called an over-allotment option (aka greenshoe) that allows banks to sell more shares than initially allotted, to help stabilize the IPO price. This is usually more $ for the banks.