Green Shoe Option And Its Role In Post Issue Price Stabilization In Indian Capital Market
17 Pages Posted: 3 Feb 2021
Date Written: November 22, 2020
A green shoe option (GSO) provides the option of allotting equity shares in excess of the equity shares offered in the public issue as a post-listing price stabilizing mechanism. This research paper covers the process overview of green shoe option in India and compares it with the process prevailing in other countries. The paper also consists of rationale for including green shoe option in IPO programs. The paper further examines whether companies need to include GSOs in their initial public offerings (IPOs), and explores the reasons for the indifference on the part of issuer companies and merchant banks in India towards GSOs. The aftermarket price performance of companies that included GSOs in their IPOs is analysed; however, the results of this analysis do not lead to any generalization due to the small number of companies that opted for GSO.
Keywords: Green Shoe Option, Over Allotment, Under Pricing and Overpricing of IPOs, Post Issue Price Stabilization
JEL Classification: G19
Suggested Citation: Suggested Citation