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Conflicts of Interest in the Underwriting of IPOs and Price Stabilization

FEUNL Working Paper No. 596

27 Pages Posted: 24 Oct 2015  

Antonio Gledson De Carvalho

Fundacao Getulio Vargas School of Business at Sao Paulo

Joao Amaro de Matos

Nova School of Business and Economics

Douglas Beserra Pinheiro Sr.

KOIN

Marcio Mello

Government of the Federative Republic of Brazil - Federal Senate

Date Written: June 2015

Abstract

Banks that supply capital and simultaneously underwrite securities for the same clients may benefit themselves or their clients at the expenses of investors by overpricing securities. We investigate this issue by analyzing price stabilization and short-term returns of IPOs. Our analysis suggests that equity-conflicted underwriters overprice IPOs and use price stabilization to disguise overpricing. The same does not happen with loan-conflicted underwriters. We also show that the partial adjustment phenomenon may result from price stabilization, since it disappears after the stabilization is over.

Keywords: Universal Banking, conflict of interest, underwriting, IPO, price stabilization, aftermarket short covering, partial adjustment

JEL Classification: G24

Suggested Citation

De Carvalho, Antonio Gledson and Amaro de Matos, Joao and Pinheiro, Douglas Beserra and Mello, Marcio, Conflicts of Interest in the Underwriting of IPOs and Price Stabilization (June 2015). FEUNL Working Paper No. 596. Available at SSRN: https://ssrn.com/abstract=2678920 or http://dx.doi.org/10.2139/ssrn.2678920

Antonio Gledson De Carvalho

Fundacao Getulio Vargas School of Business at Sao Paulo ( email )

R. Itapeva, 474 - 7o. andar
Sao Paulo 01313-902
Brazil
+5511 3281-7767 (Phone)

Joao Amaro de Matos (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-038
Portugal

HOME PAGE: http://docentes.fe.unl.pt/~amatos

Douglas Pinheiro

KOIN ( email )

Sao Paolo
Brazil

Marcio Mello

Government of the Federative Republic of Brazil - Federal Senate ( email )

SQS 112 - I - 602
Brasilia
Brazil

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