When do investment banks use IPO price support?

Sturla Fjesme

European Financial Management, 2019, vol. 25, issue 3, 437-461

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.

Date: 2019
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