For whom does an IPO toll: the offeror, the book runners, or the investors?

That's a dilemma that arises with every new initial public offering. I recently attended a conference on the subject of running IPOs, at which the process was described as "more art than science." Book runners, also known as lead underwriters, have to decide whether they can make for a more successful IPO by setting the offering price high -- generating more immediate cash for the offeror, but running the risk that demand will be low and the shares' market price will quickly fall -- or setting the price low, perhaps creating a buying frenzy that spurs the shares to move higher. When that happens, the offeror can file for a follow-on offering of shares to take advantage of the new and improved price.

Last week, we saw one set of book runners, Citigroup (NYSE:C) and Credit Suisse (NYSE:CSR), choose the low road in introducing Flash memory maker Spansion (NASDAQ:SPSN) to the public. Meanwhile, Bank of America (NYSE:BAC) and JPMorganChase (NYSE:JPM) took the high road with their IPO of ambulance and emergency department staffing outsourcer Emergency Medical Services (NYSE:EMS).

Both IPOs suffered from an apparent lack of demand among investors. Seeing this, Citigroup and Credit Suisse cut Spansion's pricing twice, dropping it 33% in all. As a result, on IPO day, the shares rocketed back 13% from their issuance price of $12. Bank of America and JPMorgan, on the other hand, were more moderate in paring back their initial pricing range of $15 to $17, setting the offer price at $14. Result: After an initial hop up, Emergency Medical Sevices' shares quickly proceeded to skid downward to end the day at $13.10, netting first-in buyers a 6.4% loss for the day. Doh!

According to its S-1 filing with the Securities and Exchange Commission, EMS planned to float 7.8 million shares at the IPO; according to Renaissance Capital's IPOhome.com, 8.1 million shares were actually issued. Assuming that Renaissance's information, being more recent, is more accurate, the issuance therefore grossed about $113 million for EMS (or rather, for its owner, Canada's Onex.) Had the firm and its advisors elected to cut the price to, say, the $12 one that Spansion chose, it would have cost EMS about $16 million. Spansion's shares flew after their price reduction, despite the company being both unprofitable and having negative free cash flow. So it's likely that EMS, being both profitable and trading at a reasonable multiple of 15 times those profits, could be trading higher than it is today, had its IPO had been priced a bit lower. And with that first day-momentum under its belt, the shares could have been poised for greater gains going forward.

The debate goes on.

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Fool contributor Rich Smith owns no shares in any company mentioned in this article.