IPO Stabilization Activities by Underwriters: Overallotment Option

• Main Authors: Wei-Li Tang, 唐維勵
• Other Authors: Pei-Hsuan Lee
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/10741258849782818738

碩士 === 國立中正大學 === 財務金融所 === 97 === The overallotment system, which provides underwriters stabilization activity, has been applied to the IPO market in Taiwan since October, 2005. Under this system, underwriters are responsible for stabilizing prices of newly listed shares. However, investors, issuers and researchers were not familiar with the issue about IPO stabilization. Therefore, the primary objective of this research is to investigate the implication of overallotment and stabilization activities conducted by underwriters. The results indicate that: (1) After the application of overallotment system, the average initial return has been increased, which might result from underwriters’ incentives of excessively underpricing the issue. (2) The number of shares expected to be sold via overallotment is an indicator of ex-ante risk or information asymmetry; the stabilization activity can help IPO investors measure aftermarket stock performances. (3) The stabilization activity can effectively help IPO investors reduce their possible investment loss. (4) Issuers did not obtain corresponding benefit for bearing the issue cost resulting from the overallotment. Therefore, the overallotment system is not favorable to issuers. (5) The disciplinary rules established by the authority are an integral part of the overallotment system. (6) To help underwriters conform to rules governing stabilization operation, the supervisor should implement the underwriters ranking mechanism as soon as possible.