When do Investment Banks use IPO Price Support?

Forthcoming in the European Financial Management

41 Pages Posted: 12 Jan 2021

Date Written: January 1, 18

Abstract

Practitioners, regulators, and the financial media argue that underwriters tie Initial Public Offering (IPO) allocations to investor post-listing buying of the issuer shares in a process labelled price support. Arguably, this excess demand boosts post-listing returns which underwriters trade quid-pro-quo with investor stock-trading-commission payments. In this paper, I investigate unique data from the Oslo Stock Exchange (OSE) including investor stock-trading-commissions, IPO allocations, and post-listing trading. I document that investors who provide high returns to underwriters before IPOs benefit from price support through increased returns in IPOs. I conclude that price support is used when investors share boosted returns with underwriters.

Keywords: IPOs, Price Support, Stock-trading commission

JEL Classification: G24

Suggested Citation

Fjesme, Sturla Lyngnes, When do Investment Banks use IPO Price Support? (January 1, 18). Forthcoming in the European Financial Management, Available at SSRN: https://ssrn.com/abstract=3738449 or http://dx.doi.org/10.2139/ssrn.3738449

Sturla Lyngnes Fjesme (Contact Author)

Oslo Business School ( email )

P.O. Box 4
Oslo, 0130
Norway

HOME PAGE: http://sturlafjesme.com/

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