[I]nvestment bankers appeared to set the price for IPOs so as to maximise the price pop on the first day of trading - and not maximise the cash received by shareholders who were selling. From this point of view a lower price for the IPO might be preferable to a higher price, for the demand for the stock would increase - at least for a while - as the pop increased. The entrepreneurs sold only a small part of their total shares at the IPO; they calculated that the larger the pop the greater their wealth. They were more interested in the apparent value of the shares they owned at the end of the first day's trading than they were the amount of cash they may obtain from the IPO.
On some IPO days the number of shares traded was three or four times the number of shares that had been sold at the IPO. Since many of the buyers at the IPO had been told to hold their shares, the float was much smaller than the number of shares sold, and so those shares in float might have been traded five or six times in the course of the day.
The efficient allocation of capital eh?