Who sets the price of an IPO?

In an IPO, the price of the shares is determined by the underwriters, who are investment banks hired by the company to help facilitate the offering. The underwriters work with the company to determine the appropriate offering price, based on a number of factors including the company’s financial performance, growth prospects, and market conditions.

The underwriters typically conduct a “roadshow” before the IPO, where they meet with potential investors and gauge interest in the offering. Based on this feedback, they can determine the demand for the shares and set an offering price that they believe will generate sufficient demand while also providing a good return for investors.

The offering price is typically set slightly below the expected market price of the shares, in order to generate interest and demand for the offering. However, it is important to note that the actual market price of the shares after they begin trading can be higher or lower than the offering price, depending on factors such as market conditions and investor sentiment.

In summary, the underwriters are responsible for setting the offering price of an IPO, based on their assessment of the company’s financial performance, growth prospects, and market conditions, as well as feedback from potential investors.