What is underpricing? What is leaving money on the table?

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What is underpricing? What is leaving money on the table?

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What is underpricing? What is leaving money on the table?

Explanation & AnswerSolution by a verified expert

Explanation

Underpricing is a short term practice of listing new securities of a company on the stock exchange at a lower price in order to encourage the investors to purchase the securities and uplift its demand in the market. The measure is taken by the investment bank in case of underwriting so that it does not have to bear the cost of under subscription.
Leaving money on the table is a cost incurred by the company due to the difference in closing price of securities on the first day of trading and issue price of securities offered by the company. It is determined by multiplying the number of securities of an offer with the difference in closing price on the first day and offer price of securities.

Verified Answer

Underpricing is the listing of new securities of a company at a lower price on stock exchange to attract the investors and deter the problem of under subscription.
Leaving money on the table is the indirect cost incurred by the company due to the difference in closing price of securities on the first day of trading and issue price of securities offered by the company.

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