Determinants of price stabilisation in initial public offerings

Antonio Gledson de Carvalho, João Amaro de Matos, Douglas Beserra Pinheiro

Research output: Contribution to journalArticle

Abstract

We model price stabilisation in IPOs as a sequential decision: syndicate short position (SSP); occurrence of aftermarket short covering (ASC); and intensity of the ASC. We provide empirical evidence that corroborates its predictions. Our analysis is possible because in Brazil underwriters must disclose information on price stabilisation. We innovate by simultaneously modelling the three different decisions. Our model predicts, and empirical results confirm, that the three decisions have distinct determinants: ex-ante demand is the only factor affecting the SSP, and ASC and its intensity increases with the riskiness of the issue, the ex-ante demand, and the underwriter’s reputation. Our model also innovates by considering the underwriter’s reputation.

Original languageEnglish
Pages (from-to)411-433
Number of pages23
JournalInternational Journal of Banking, Accounting and Finance
Volume11
Issue number3
DOIs
Publication statusPublished - 1 Jan 2020

Keywords

  • Aftermarket short covering
  • Greenshoe
  • IPO
  • Price stabilisation

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