Practitioners, regulators, and the financial media argue that underwriters tie initial public offering (IPO) allocations to investor post‐listing buying of the issuer shares in a process labelled price support.
Arguably, this excess demand boosts post‐listing returns which underwriters trade quid pro quo with investor stock‐trading commission payments.
8. What is Underwriting of Securties by Investment Bank?
In this paper, I investigate unique data from the Oslo Stock Exchange (OSE) including investor stock‐trading commissions, IPO allocations, and post‐listing trading. I document that investors who provide high returns to underwriters before IPOs benefit from price support through increased returns in IPOs.
I conclude that price support is used when investors share boosted returns with underwriters.