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Risk, Reputation, and IPO Price Support

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  • KATHARINA LEWELLEN

Abstract

Immediately following an initial public offering, underwriters often repurchase shares of poorly performing offerings in an apparent attempt to stabilize the price. Using proprietary Nasdaq data, I study the price effects and determinants of price support. Some of the key findings are (1) Stabilization is substantial, inducing price rigidity at and below the offer price; (2) I find no evidence that stocks with larger information asymmetries are stabilized more strongly; (3) Larger underwriters stabilize more, perhaps to protect their reputations with investors; and (4) Investment banks with retail brokerage operations stabilize much more than other banks, inconsistent with the view that stabilization benefits primarily institutional investors.

Suggested Citation

  • Katharina Lewellen, 2006. "Risk, Reputation, and IPO Price Support," Journal of Finance, American Finance Association, vol. 61(2), pages 613-653, April.
    • Handle: RePEc:bla:jfinan:v:61:y:2006:i:2:p:613-653
    DOI: 10.1111/j.1540-6261.2006.00850.x
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