Over-allotment options in IPOs on Germany´s Neuer Markt : an empirical investigation

  • Over-allotment arrangements are nowadays part of almost any initial public offering. The underwriting banks borrow stocks from the previous shareholders to issue more than the initially announced number of shares. This is combined with the option to cover this short position at the issue price. We present empirical evidence on the value of these arrangements to the underwriters of initial public offerings on the Neuer Markt. The over-allotment arrangement is regarded as a portfolio of a long call option and a short position in a forward contract on the stock, which is different from other approaches presented in the literature. Given the economically substantial values for these option-like claims we try to identify benefits to previous shareholders or new investors when the company is using this instrument in the process of going public. Although we carefully control for potential endogeneity problems, we find virtually no evidence for a reduction in underpricing for firms using over-allotment arrangements. Furthermore, we do not find evidence for more pronounced price stabilization activities or better aftermarket performance for firms granting an over-allotment arrangement to the underwriting banks.

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Metadaten
Author:Stefanie A. Franzke, Christian Schlag
URN:urn:nbn:de:hebis:30-10068
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2002,16
Series (Serial Number):CFS working paper series (2002, 16)
Document Type:Working Paper
Language:English
Year of Completion:2003
Year of first Publication:2003
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:Flotation Costs; Neuer Markt; Over-Allotment Option; Underwriter Fee
GND Keyword:Deutschland; Börsenzulassung; Going Public; Wertpapieremission; Call-Option; Exotic options; Optionsgeschäft; Optionshandel; Optionsmarkt; Put-Option; Optionspreistheorie; Schätzung; Neuer Markt <Börse>; Neuer Markt; New Economy
Issue:September 28, 2003
Note:
First Version December 2, 2002. This Version September 28, 2003.
HeBIS-PPN:20401056X
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht