For a new company, Who sets the first value of a stock?

Question

For a new company, Who sets the first value of a stock?

Answer 1

Ted's got it right.

The investment bank has experience in selling to the public previous companies of similar businesses and sizes.  They will come up with a price range, and then will have their sales force call institutional / high net worth clients to see what kind of demand there is.  If there is a lot of demand for the shares, the IPO will price above the range, or would price below the range if there isn't enough interest.

Some IPOs get pulled because the interest is so low, that it doesn't make sense for the company to offer shares at such a low price.

Answer 2

The company with the help of their account firm decides how many shares they want to issue, by deciding how much ownership they are willing to give up.

The company and an underwriting decide how much money the company wants in exchange for giving up that percentage of ownership (number of shares), so the dollar amount divided by the number of shares would be the issue price (less fees)

The underwriter will usually guarantee the company X amount of dollars for selling a given number of shares.

The underwriter with the selling group (selling syndicate) will verify that they can sell the required numbers of shares at the given price.

If the stock is to be immediately listed, the underwriter will apply to the exchange for listing, the exchange will assign a specialist (if used) or with the help of the underwriter market makers will be assigned.  Usually neither the specialist or the market makers have any decision in setting the price.

Answer 3

the Specialist on the floor at Wall Street

Answer 4

thats the IPO <initial public offering>.  normally you need to invest a minimum of 250k in order even to purchase some of the IPO and the price is set by the current majority owner and it is a fair price to make a great return just before going public.  investors can do the math.. market value of the company and its assets divided by outstanding shares should give you an estimated share price.

Answer 5

The stock is officially set by the company, but in reality it is the investment bank that is underwriting the issue based simply on what they think they can sell it for.