According to Warren Fees in his book "Accounting," there are a number of factors that ultimately control the pricing of an Initial Public Offering (IPO). The stock of a corporation that intends to go public is often issued at a price other than its par value. This is because the par value the stock represents an almost arbitrary value. The actual market price at which stock can be sold by a corporation depends on a variety of factors. According to Fees, some of the more important factors include the financial condition of the company at the time of the IPO, as well as its earnings record. Also, if the company considering an IPO has a history of paying dividends to stockholders as a privately held company, its dividend record will be of interest to potential investors in the IPO.
             Another factor that will be considered when determining the stock price in an IPO involves investors' expectations about the corporation's potential earning power. More specifically, potential IPO investors will be interested in knowing what the company intends to do with the proceeds of the IPO. For example, a potential investor might be more interested in purchasing a stock in which the intended use of the IPO proceeds is to expand manufacturing operations, rather than learning that the company intends to use the proceeds of the IPO to pay down existing debts. The reason or rationale is fairly simple; paying down debts does not increase shareholder value, but increasing the company's capacity to produce has the potential for generating increased revenues and additional profits.
             According to Fees, another important factor in controlling the pricing of an IPO involves the general business and economic conditions, as well as economic and business prospects. In other words, if potential investors view the IPO has been poorly timed in terms of changes in the broader economic outlook, they may shy away from stock in favor of some form of inv...