Stabilization, Syndication, and Pricing of IPOs
We argue that in the after-market trading of an IPO, the underwriting syndicate, by standing ready to buy back shares at the offer price (“price stabilization”), compensates uninformed investors ex post for the adverse selection cost they face in bidding for IPOs. This dominates ex ante compensation by underpricing. The reason is that stabilization exploits ex post information about investor demand whereas underpricing must be based on ex ante information. However, liquidity and syndication costs constrain the use of stabilization which, in equilibrium, generates some underpricing as well. We develop a model that formalizes this intuition and generates several empirical implications.
Volume (Year): 31 (1996)
Issue (Month): 01 (March)
|Contact details of provider:|| Postal: |
Web page: http://journals.cambridge.org/jid_JFQ
When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:31:y:1996:i:01:p:25-42_00. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.