> Investment bankers would like to preserve their good relationship with the hoardes of potential IPO investors, and therefore would like the IPO price to be below the "true value" of the stock, to provide their clients with a nice short term return.
Do you have a source for this? It was my understanding that the investment bankers want the IPO to be priced as high as possible because that's how they make their commission. See the potential windfall for JP Morgan on the Saudi Aramco IPO
Commissions don't align interests very well (real estate, cars, etc.) because you have a much greater incentive to increase your turnover and number of clients than to get a slightly higher price for one sale.
Investment banks often have to make guarantees about selling all of the shares, and the worst thing that can happen for them is to have a broken IPO (shares close below the open price). The investment bank that led Facebook's IPO had to buy back shares immediately to prevent that from happening.
Also, many of the initial shares are bought from the investment bank's book of contacts that they reached out to on their roadshow. If you lose money for your fund manager buddies, they won't invest in your next IPO.
Both are true. The bankers make more money on this deal the higher it prices, but they can't get the next deal done unless they're on good terms with investors.
Do you have a source for this? It was my understanding that the investment bankers want the IPO to be priced as high as possible because that's how they make their commission. See the potential windfall for JP Morgan on the Saudi Aramco IPO