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This is a Literature Review study.

Determinants of IPO Pricing: A Review of Theories and Evidence

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Literature review reveals underpricing driven by information asymmetry and signaling theory in IPOs.

Underpricing in IPOs compensates uninformed investors for risk, enhancing participation in the market.
Empirical studies show that information asymmetry leads firms to underprice shares to attract institutional investors.
Signaling theory indicates high-quality firms may accept short-term losses through underpricing to establish long-term gains.
Market sentiment, firm size, and underwriter reputation influence the allocation process in initial public offerings.

Zhu et al. (2025) studied this question.

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