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Short covering and price stabilization of IPOs

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  • A. Signori
  • M. Meoli
  • S. Vismara

Abstract

Underwriters underprice Initial Public Offerings (IPOs) and often, immediately after, repurchase shares in an attempt to stabilize the price. This ancillary service is not mandatory and can be provided by underwriters in the first month of trading. Using a sample of Italian IPOs, we investigate whether the price stabilization activity is carried out when actually needed. We document that only half of the IPOs that require this service are actually stabilized after going public. The fees charged by underwriters are not informative about the provision of this ancillary activity. Rather, the underwriter's reputation is negatively associated with the stabilization activity. Negative price revisions and negative (or low) underpricing also drive the provision of price stabilization.

Suggested Citation

  • A. Signori & M. Meoli & S. Vismara, 2013. "Short covering and price stabilization of IPOs," Applied Economics Letters, Taylor & Francis Journals, vol. 20(10), pages 931-937, July.
    • Handle: RePEc:taf:apeclt:v:20:y:2013:i:10:p:931-937
    DOI: 10.1080/13504851.2013.765536
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    Cited by:

    1. Cristiana Cardi & Camilla Mazzoli & Sabrina Severini, 2019. "People have the power: post IPO effects of intellectual capital disclosure," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(2), pages 228-255, April.
    2. Cristiana Cardi & Camilla Mazzoli & Sabrina Severini, 2018. "Friend or foe? The effect of corporate governance on intellectual capital disclosure in IPOs," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 15(1), pages 1-12, February.
    3. Sturla Lyngnes Fjesme, 2019. "When do investment banks use IPO price support?," European Financial Management, European Financial Management Association, vol. 25(3), pages 437-461, June.

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