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Short covering and price stabilization of IPOs

Author

Listed:
  • Andrea Signori
  • Michele Meoli
  • Silvio Vismara

Abstract

The price stabilization service consists of purchasing shares in the aftermarket in order to prevent price drops, and it is not mandatory. Using a sample of Italian IPOs, we find that only half of the IPOs that require this service are actually stabilized after going public and that price support is substantial for poorly performing IPOs. Nevertheless, the fees charged are not informative about the provision of this ancillary activity. Rather, the underwriter’s reputation is negatively associated to the stabilization activity. Negative price revisions and negative (or low) underpricing, also drive the provision of these services.

Suggested Citation

  • Andrea Signori & Michele Meoli & Silvio Vismara, 2012. "Short covering and price stabilization of IPOs," Working Papers 1204, Department of Management, Information and Production Engineering, University of Bergamo.
    • Handle: RePEc:brh:wpaper:1204
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    File URL: http://hdl.handle.net/10446/27079
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