Stabilization Activities by Underwriters After Initial Public Offerings

Posted: 11 Oct 2010 Last revised: 8 Nov 2012

See all articles by Reena Aggarwal

Reena Aggarwal

Georgetown University - Robert Emmett McDonough School of Business ; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: 2000

Abstract

Prior research has assumed that underwriters post a stabilizing bid in the aftermarket, we find instead that aftermarket activities are less transparent and include stimulating demand through short covering and restricting supply by penalizing the flipping of shares. In more than half the IPOs, a short position of an average 10.75 percent of shares offered is covered in 22 transactions over 16.6 days in the aftermarket, resulting in a loss of 3.61 percent of underwriting fees. Underwriters manage price support activities by using a combination of aftermarket short covering, penalty bids, and the selective use of the overallotment option.

Suggested Citation

Aggarwal, Reena, Stabilization Activities by Underwriters After Initial Public Offerings (2000). Journal of Finance, Vol. 60, No. 3, pp. 1075-1104, June 2000, Available at SSRN: https://ssrn.com/abstract=1690562

Reena Aggarwal (Contact Author)

Georgetown University - Robert Emmett McDonough School of Business ( email )

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