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Conflicts of interest in the underwriting of IPOs and price stabilization

Author

Listed:
  • Antonio Gledson de Carvalho
  • Joao Amaro de Matos
  • Douglas Beserra Pinheiro
  • Marcio de Sa Mello
Abstract
Banks that supply capital and simultaneously underwrite securities for the same clients may benefit themselves or their clients at the expenses of investors by overpricing securities. We investigate this issue by analyzing price stabilization and short-term returns of IPOs. Our analysis suggests that equity-conflicted underwriters overprice IPOs and use price stabilization to disguise overpricing. The same does not happen with loan-conflicted underwriters. We also show that the partial adjustment phenomenon may result from price stabilization, since it disappears after the stabilization is over.

Suggested Citation

  • Antonio Gledson de Carvalho & Joao Amaro de Matos & Douglas Beserra Pinheiro & Marcio de Sa Mello, 2015. "Conflicts of interest in the underwriting of IPOs and price stabilization," Nova SBE Working Paper Series wp596, Universidade Nova de Lisboa, Nova School of Business and Economics.
    • Handle: RePEc:unl:unlfep:wp596
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Universal Banking; conflict of interest; underwriting; IPO; price stabilization; aftermarket short covering; partial adjustment;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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