Module III· ECM — IPO ProcessIntermediate
Question

What is an IPO discount, and why does it exist?

Answer

IPO discount is the valuation discount to listed peers or intrinsic value offered to attract investors into a new issue. It compensates for execution risk, limited trading history, information asymmetry, market volatility, and liquidity uncertainty. Too little discount risks weak demand; too much leaves money on the table for the issuer or selling shareholders.