Some interesting findings on IPO price support (market actions by i-banks to keep new IPOs from falling below their issue price) in a paper in the current issue of the Journal of Finance. Among the more surprising findings, it is more closely tied to retail banking than to institutional banking. Most people, including me, have thought the opposite would be true.
Risk, Reputation, and IPO Price Support
Immediately following an initial public offering, underwriters often repurchase shares of poorly performing offerings in an apparent attempt to stabilize the price. Using proprietary Nasdaq data, I study the price effects and determinants of price support. Some of the key findings are (1) Stabilization is substantial, inducing price rigidity at and below the offer price; (2) I find no evidence that stocks with larger information asymmetries are stabilized more strongly; (3) Larger underwriters stabilize more, perhaps to protect their reputations with investors; and (4) Investment banks with retail brokerage operations stabilize much more than other banks, inconsistent with the view that stabilization benefits primarily institutional investors.