What can result from having too few institutional investors involved in an IPO?

Having too few institutional investors involved in an IPO can lead to higher volatility in stock trading post-IPO. Institutional investors typically possess the resources and expertise to analyze companies deeply and provide stability to the stock after it goes public. Their involvement can absorb more shares, providing a buffer against rapid price fluctuations in the market.

When there is a lack of institutional participation, the stock may experience more significant swings in price as retail investors, who may not have the same level of analysis or long-term commitment, dominate trading. These retail investors could react more emotionally to news or market conditions, causing the stock to bounce around more dramatically. Consequently, this lower institutional presence can undermine the stability typically provided after an IPO, leading to increased volatility in stock trading.

The other options suggest positive outcomes that are generally not associated with the absence of institutional investors. For instance, stronger investor interest overall, better pricing of shares, and improved financial stability are typically enhanced by a solid base of institutional investment, as these investors are often viewed as knowledgeable and reliable, thus instilling greater confidence in the broader market.