This large marginal cost suggests that there must be equally large benefits to raising the marginal dollar in an IPO.

Firms forego 7% on every share sold in the form of a spread to underwriters and leave about 20% of proceeds on the table in the form of IPO underpricing (Ritter, 1987 Chen and Ritter, 2000). A perplexing result in the initial public offering (IPO) literature is the large marginal cost associated with raising initial equity.