IPO underpricing, the tendency for newly issued shares to trade above their offer price on the first day, is a persistent global phenomenon. Empirical evidence suggests that U.S. IPOs averaged an 18.8% first-day return from 1980 to 2001, imposing significant indirect costs on issuers. This paper reviews key explanations for underpricing, including information asymmetry, signaling, agency conflicts, and behavioral factors. Empirical research highlights firm characteristics, underwriter reputation, market conditions, and regulatory factors as major determinants. While underpricing facilitates liquidity and market participation, it also reflects inefficiencies. This study synthesizes theoretical perspectives and empirical findings, emphasizing the need for improved disclosure, governance, and regulatory oversight.