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Initial public offering price support, valuation, and returns

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  • Lokman Tutuncu

    (Bulent Ecevit University)

Abstract

This study examines the relationship between price support, valuation and returns in a unique sample of 114 firms going public at Borsa Istanbul. I utilize disclosed information in pre-issue prospectuses and valuation reports as well as post-issue material event files to document that: initial public offerings implementing price support have lower initial and short-term returns, and larger optimistic valuation bias relative to offerings without price support. Tests show that underwriters’ valuation bias increases the probability of implementing price support, and one standard deviation increase in price support is associated with a 19.4% decline in short-term returns, after controlling for the selection bias associated with simultaneously deciding the offer price and price support.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:eurase:v:10:y:2020:i:2:d:10.1007_s40822-018-0124-2
    DOI: 10.1007/s40822-018-0124-2
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