How Does Underwriter Price Support Affect IPOs? Empirical Evidence

Nagpurnanand Prabhala and Manju Puri

Yale School of Management Working Papers from Yale School of Management

Abstract: While it is extensively documented that underwriters often "stabilize" or "support" initial public offerings (IPOs), less is known about how this practice impacts the IPO process. We argue that price support creates a short put position for underwriters, and thereby gives underwriters the incentive to reduce the ex-ante price risk of IPOs. We provide extensive empirical evidence that price support is related to IPO price risk, using

Date: 1998-06-01, Revised 2000-07-01
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Working Paper: How Does Underwriter Price Support Affect IPOs? Empirical Evidence (2000)
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