Abstract In this study, I develop a model that describes underwriters' price-setting behavior during initial public offerings (IPOs). Because of reputational concerns during high valuation periods, top-tier underwriters adjust the initial offer price valuation to the lower, historical industry valuation. The top-tier underwriter effectively increases the first day return but decreases the long-run underperformance of the IPO. In contrast, low-tier underwriters price issues to maximize cash flow. The empirical findings support the model. The first day return is significantly correlated to the relative valuation, and reputational concerns are only important to top-tier underwriters.