Risk, Reputation, and IPO Price Support



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    • MIT Sloan School of Management. I thank Michael Ferri and especially Tim McCormick of the NASD Economic Research Department for their extensive help in providing the data. I also thank an anonymous referee, the Editor, Reena Aggarwal, Mike Barclay, Nittai Bergman, Pat Fishe, Cliff Holderness, Jon Lewellen, Stew Myers, Jay Ritter, David Scharfstein, Antoinette Schoar, Bill Schwert, Jerry Warner, Ross Watts, and workshop participants at Dartmouth, Georgetown University, MIT, and the University of Rochester for their many insightful comments. Julie Yoon provided excellent research assistance. Financial support from the Nasdaq Educational Research Foundation is gratefully acknowledged. All errors are my own.


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.