4. Selection of an investment bank. Most deals are negotiated, so the firm must select an investment bank. This can be an important decision for a firm that is going public.

On the other hand, an older firm that has already “been to market” will have an established relationship with an investment bank. However, it is easy to change banks if the firm is dissatisfied. Different investment banking houses are better suited for different companies. For example, Goldman Sachs and Morgan Stanley are the leading tech-IPO underwriters. Investment banking houses sell new issues largely to their own regular brokerage customers, so the nature of these customers has a major effect on the ability of the house to do a good job for corporate issuers.

Finally, a major factor in choosing an underwriter is the reputation of the analyst who will cover the stock in the secondary market, since a strong buy recommendation from a well-respected analyst can trigger a sharp price run-up.