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Stabilisation Activity in Italian IPOs

Published online by Cambridge University Press:  04 October 2011

Dmitri Boreiko  and
Stefano Lombardo
Dmitri Boreiko
Affiliation:
Respectively, Assistant Professor of Corporate Finance, School of Economics and Management, Free University of Bolzano, Italy, email: dmitri.boreiko@unibz.it CRELE Associate (Center for Research in Law and Economics, School of Economics and Management, Free University of Bolzano), and Assistant Professor of Economic and Business Law, School of Economics and Management, Free University of Bolzano, email: stefano.lombardo@unibz.it, Visiting Fellow, Department of Law, London School of Economics and Political Science, October 2010-June 2011, email: s.lombardo@lse.ac.uk, ECGI Research Associate and CRELE Associate.
Stefano Lombardo
Affiliation:
Respectively, Assistant Professor of Corporate Finance, School of Economics and Management, Free University of Bolzano, Italy, email: dmitri.boreiko@unibz.it CRELE Associate (Center for Research in Law and Economics, School of Economics and Management, Free University of Bolzano), and Assistant Professor of Economic and Business Law, School of Economics and Management, Free University of Bolzano, email: stefano.lombardo@unibz.it, Visiting Fellow, Department of Law, London School of Economics and Political Science, October 2010-June 2011, email: s.lombardo@lse.ac.uk, ECGI Research Associate and CRELE Associate.
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Abstract

Commission Regulation (EC) No 2273/2003 regulates price stabilisation activities for equity initial public offerings (IPOs) in Europe as a form of permitted market manipulation. To test the actual practices and effects of stabilisation we empirically analyse the support provided by underwriters of 141 Italian IPOs from 2000 through to 2008. We find that underwriters support the share prices not only by short covering, but also by posting pure stabilisation bids. Pure short covering is mostly used by more reputable underwriters for IPOs with higher institutional participation and more secondary shares in the offer, whereas the opposite is true for pure stabilization IPOs. We try to identify some patterns in underwriters' aftermarket activities and analyse the extent to which the stabilisation activity, permitted for four weeks after trading begins, produces temporary or permanent effects on share prices.

Keywords

law and financeempirical legal studiesIPOsunderpricingstabilisationgreenshoe optionoverallotment facilityshort coveringpure stabilisation
Type
Articles
Information
European Business Organization Law Review (EBOR) , Volume 12 , Issue 3 , September 2011 , pp. 437 - 467
Copyright
Copyright © T.M.C. Asser Press and the Authors 2011

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