학회소식
[2017년 제 4차] Mandatory Price Support of the Underwriter: Evidence from the putback option
작성자 : 관리자
조회수 : 192
게시일 :
2017-12-08
Regulatory changes regarding the price supporting role of the underwriter can alter the pricing of the IPO and the relationship between the underwriter and institutional investors. We examine a unique period of time in Korea during which there was a mandatory market making role of the underwriter called the putback option. Under the putback option, individual investors of the IPO have a put option which allows them to sell shares of the IPO firm back to the underwriter at 90% of the IPO offer price within one month after the IPO. We compare between the period when the putback option was enforced and the period after the putback option was abolished. We find that during the period when the putback option was enforced, the higher risk of the underwriter resulted in more underpricing of IPOs. We also find that the significant selling activity by institutions and the predictive power institutions' trading for future performance is found not on the days following the IPO but on days following the expiration of the putback option. Overall, our study suggests that the regulation of imposing a mandatory price supporting role of the underwriter results in only a temporary delay in institutions' behavior.
