Investment banks are not the primary beneficiary of an IPO, it's the current shareholders of an illiquid stock. Hopefully a banker can fill in some of the details but I will provide a couple of broad strokes here on the process. The underwriting banks are the ones taking the risk in an IPO. They are purchasing the shares from the company to be sold to the public. If they get that wrong they are the ones who will shoulder the loss. The underwriting banks are usually (maybe always) contractually obligated to support the price of a company they underwrite on the date of the IPO. If you look at the NASDAQ ITCH data from Facebook's IPO you can see the price levels fill up with orders when the price declined toward the IPO price.
There is also a lot of other considerations to consider when fielding a proposal from an investment bank, from research analyst assignment, purchasing from the AM arm, access to lines of credit and other financial arrangements.
You could argue that companies should be allowed to take themselves public and list directly. However in a world where people are clamoring for ever more regulation that is unlikely to be a common way for a major company to go public. Personally I would like to see less regulation in the equity market, but I am unlikely to receive that ;-)
There is also a lot of other considerations to consider when fielding a proposal from an investment bank, from research analyst assignment, purchasing from the AM arm, access to lines of credit and other financial arrangements.
You could argue that companies should be allowed to take themselves public and list directly. However in a world where people are clamoring for ever more regulation that is unlikely to be a common way for a major company to go public. Personally I would like to see less regulation in the equity market, but I am unlikely to receive that ;-)
Further Reading:
http://www.mergersandinquisitions.com/initial-public-offerin...
http://libertystreeteconomics.newyorkfed.org/2012/10/in-a-re...