Title: Determinants of price stabilisation in initial public offerings

Authors: Antonio Gledson De Carvalho; João Amaro De Matos; Douglas Beserra Pinheiro

Addresses: Fundação Getulio Vargas, School of Business Administration at São Paulo, Rua Itapeva 474, Sala 802, São Paulo, SP, 01332-000, Brazil ' Nova School of Business and Economics, Universidade Nova de Lisboa, Campus de Campolide, Lisboa, 1099-032, Portugal ' C6Bank, Avenida Nove de Julho, 3186, São Paulo, SP, 01406-000, Brazil

Abstract: We model price stabilisation in IPOs as a sequential decision: syndicate short position (SSP); occurrence of aftermarket short covering (ASC); and intensity of the ASC. We provide empirical evidence that corroborates its predictions. Our analysis is possible because in Brazil underwriters must disclose information on price stabilisation. We innovate by simultaneously modelling the three different decisions. Our model predicts, and empirical results confirm, that the three decisions have distinct determinants: ex-ante demand is the only factor affecting the SSP, and ASC and its intensity increases with the riskiness of the issue, the ex-ante demand, and the underwriter's reputation. Our model also innovates by considering the underwriter's reputation.

Keywords: IPO; price stabilisation; aftermarket short covering; greenshoe.

DOI: 10.1504/IJBAAF.2020.107959

International Journal of Banking, Accounting and Finance, 2020 Vol.11 No.3, pp.411 - 433

Received: 25 Jun 2018
Accepted: 12 Jan 2019

Published online: 05 Apr 2020 *

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