First: Stop thinking of it as a short. The underwriters are not short because of the overallotment; They've sold those shares along with all the "normal" IPO

First: Stop thinking of it as a short. The underwriters are not short because of the overallotment; They've sold those shares along with all the "normal" IPO shares to mutual funds, pension funds etc. They are never obligated to "cover the short", the shares are permanently issued. > does this mean there are less total shares released into the market than there would have been if the price went up instead of dropping? Yes. When the share price hit 38, it is likely that MS took the money earned from selling those over allotment shares and bought a bunch of shares back. > Basically what I'm getting at is this could be viewed as a good thing right? It means that the total outstanding shares is now less than it could have been had the stock gone up. Right? That is an optimists view. The pessimist might say "This is a bad thing: The demand was low enough that the full greenshoe was not sold along with the IPO."