Immediately following public offerings, underwriters often repurchase shares of poorly performing IPOs in an apparent attempt to stabilize the price. Using proprietary Nasdaq data for a large sample of IPOs, I study the price effects and cross-sectional determinants of price support. Some of the key findings are: (1) Price stabilization is substantial, inducing significant price rigidity at and below the offer price. Stabilization appears, at least in the short run, to raise the equilibrium stock price. (2) Many studies suggest that stabilization helps to mitigate information asymmetry problems in the IPO market. I find no evidence that stocks with larger ex-ante information asymmetries are stabilized more strongly. (3) The characteristics of the lead underwriter emerge as the strongest determinants of price support. Larger and more reputable investment banks stabilize more, perhaps to protect their reputations with investors. But there are substantial differences in price support even among the largest underwriters (after controlling for IPO characteristics and underwriter size). (4) Investment banks with retail brokerage operations stabilize much more than other large investment banks. This puzzling result seems inconsistent with the common view that stabilization benefits primarily institutional investors, and I outline and examine several alternative explanation
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Massachusetts Institute of Technology (MIT), Sloan School of Management in its series Working papers with number
4453-03.
Length: Date of creation: 12 Mar 2004 Date of revision: Handle: RePEc:mit:sloanp:5055
Contact details of provider: Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA Phone: 617-253-2659 Web page: http://mitsloan.mit.edu/ More information through EDIRC
Order Information: Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
For technical questions regarding this item, or to correct its listing, contact: (Christian Zimmermann).
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: