A theory of the transition to secondary market trading of IPOs

Zhaohui Chen and William J. Wilhelm

Journal of Financial Economics, 2008, vol. 90, issue 3, 219-236

Abstract: We develop a model in which investment banks and institutional investors collaborate in smoothing an initial public offering's (IPOs) transition to secondary market trading. Their intervention promotes welfare under the assumption that significant new information arrives in the market in the immediate aftermath of the IPO. Under this assumption, it is optimal to stage the offering and suboptimal to commit to selling shares at a uniform price. The optimal strategy yields an economic rationale for secondary market price stabilization for IPOs carried out via a well-coordinated network of repeat institutional investors.

Keywords: Price; support; Initial; public; offering; Flipping; Auction; Securities; regulation (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:90:y:2008:i:3:p:219-236

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