Stabilization Activity in Italian IPOs

39 Pages Posted: 9 Dec 2009

See all articles by Dmitri Boreiko

Dmitri Boreiko

Free University of Bozen-Bolzano - School of Economics

Stefano Lombardo

European Corporate Governance Institute (ECGI); Free University of Bozen-Bolzano - CRELE Center for Research in Law and Economics; Free University of Bozen-Bolzano - Faculty of Economics and Management

Date Written: November 30, 2009

Abstract

Commission Regulation (EC) No 2273/2003 regulates the price stabilization activities for equity initial public offerings (IPOs) in Europe as a form of permitted market manipulation. To test the actual practices and effects of stabilization we empirically analyze the support provided by the underwriters of 141 Italian IPOs from 2000 through to 2008. We find that the underwriters support the share prices not only by short covering, but also by posting pure stabilization bids. Pure short covering is mostly used by more reputable underwriters for IPOs with higher institutional participation and more secondary shares in the offer, whereas the opposite is true for pure stabilization IPOs. We try to identify some patterns in underwriters’ aftermarket activities and analyze the extent to which the stabilization activity, permitted for four weeks after trading begins, produces temporary or permanent effects on share prices.

Keywords: Law and finance, IPOs, underpricing, stabilisation, greenshoe option, overallotment facility, short covering, pure stabilization

JEL Classification: G24, G32, G38, K12, K22

Suggested Citation

Boreiko, Dmitri and Lombardo, Stefano, Stabilization Activity in Italian IPOs (November 30, 2009). ECGI - Finance Working Paper No. 270/2009, Available at SSRN: https://ssrn.com/abstract=1521043 or http://dx.doi.org/10.2139/ssrn.1521043

Dmitri Boreiko

Free University of Bozen-Bolzano - School of Economics ( email )

Sernesiplatz 1
Bozen-Bolzano, BZ 39100
Italy

Stefano Lombardo (Contact Author)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Free University of Bozen-Bolzano - CRELE Center for Research in Law and Economics ( email )

Free University of Bolzano
Piazza Universita
Bolzano, BZ 39100
Italy

Free University of Bozen-Bolzano - Faculty of Economics and Management

Piazza Universita
Bolzano-Bozen (BZ), 39100
Italy
+39 0471 013491 (Phone)

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