This paper investigates the relationship between the underpricing of initial public offerings (IPOs) and the ex ante uncertainty about their value, as well as the role of investment bankers in enforcing this underpricing equilibrium. The authors propose two key propositions: (1) the greater the ex ante uncertainty about an issue's value, the greater the expected underpricing; and (2) investment bankers with reputation capital at stake enforce the underpricing equilibrium, as cheating (underpricing too much or too little) leads to loss of market share. The paper argues that IPOs are, on average, underpriced due to the winner's curse problem, where investors who receive shares in an IPO may expect lower returns than average. This is because investors who submit purchase orders face a higher risk of being allocated shares in underperforming issues. The underpricing equilibrium is enforced by investment bankers, who have a reputation to maintain. If an underwriter consistently underprices or overprices issues, it risks losing clients and damaging its reputation. Empirical evidence supports these propositions. The authors use two proxies for ex ante uncertainty: the number of uses of proceeds listed in the prospectus and the inverse of the gross proceeds. They find a positive relationship between ex ante uncertainty and expected underpricing, as predicted by Proposition 1. For Proposition 2, they analyze the market share of underwriters and find that those who consistently underprice or overprice issues lose market share over time. The paper concludes that investment bankers enforce the underpricing equilibrium to maintain their reputation and avoid losing clients. The results support the idea that the market penalizes underwriters who cheat on the underpricing equilibrium. The findings have implications for the role of investment bankers in the IPO market and the factors that influence the pricing of new issues.This paper investigates the relationship between the underpricing of initial public offerings (IPOs) and the ex ante uncertainty about their value, as well as the role of investment bankers in enforcing this underpricing equilibrium. The authors propose two key propositions: (1) the greater the ex ante uncertainty about an issue's value, the greater the expected underpricing; and (2) investment bankers with reputation capital at stake enforce the underpricing equilibrium, as cheating (underpricing too much or too little) leads to loss of market share. The paper argues that IPOs are, on average, underpriced due to the winner's curse problem, where investors who receive shares in an IPO may expect lower returns than average. This is because investors who submit purchase orders face a higher risk of being allocated shares in underperforming issues. The underpricing equilibrium is enforced by investment bankers, who have a reputation to maintain. If an underwriter consistently underprices or overprices issues, it risks losing clients and damaging its reputation. Empirical evidence supports these propositions. The authors use two proxies for ex ante uncertainty: the number of uses of proceeds listed in the prospectus and the inverse of the gross proceeds. They find a positive relationship between ex ante uncertainty and expected underpricing, as predicted by Proposition 1. For Proposition 2, they analyze the market share of underwriters and find that those who consistently underprice or overprice issues lose market share over time. The paper concludes that investment bankers enforce the underpricing equilibrium to maintain their reputation and avoid losing clients. The results support the idea that the market penalizes underwriters who cheat on the underpricing equilibrium. The findings have implications for the role of investment bankers in the IPO market and the factors that influence the pricing of new issues.