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When do investment banks use IPO price support?

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  • Sturla Lyngnes Fjesme

Abstract

Practitioners, regulators, and the financial media argue that underwriters tie initial public offering (IPO) allocations to investor post‐listing buying of the issuer shares in a process labelled price support. Arguably, this excess demand boosts post‐listing returns which underwriters trade quid pro quo with investor stock‐trading commission payments. In this paper, I investigate unique data from the Oslo Stock Exchange (OSE) including investor stock‐trading commissions, IPO allocations, and post‐listing trading. I document that investors who provide high returns to underwriters before IPOs benefit from price support through increased returns in IPOs. I conclude that price support is used when investors share boosted returns with underwriters.

Suggested Citation

  • Sturla Lyngnes Fjesme, 2019. "When do investment banks use IPO price support?," European Financial Management, European Financial Management Association, vol. 25(3), pages 437-461, June.
    • Handle: RePEc:bla:eufman:v:25:y:2019:i:3:p:437-461
    DOI: 10.1111/eufm.12170
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    References listed on IDEAS

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    Cited by:

    1. Lokman Tutuncu, 2020. "Initial public offering price support, valuation, and returns," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(2), pages 267-282, June.

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