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Underwriters’ price support regulation and institutional investors’ trading: The case of the putback option
Institution:1. Korea University Business School, 145 Anam-ro, Seongbuk-gu 02841, Seoul, South Korea;2. KB Financial Group, Yeouido-dong, Yeongdeungpo-gu, Seoul, South Korea;3. Hankuk University of Foreign Studies, Imun-ro, Dongdaemun-gu, Seoul, South Korea
Abstract:We examine a period in Korea during which a price supporting regulation called the putback option was imposed on the IPO underwriter. Under the regulation, individual investors of IPO had put options which can be exercised at 90% of IPO price. We find that during the regulation period, institutional investors’ flipping activity is evident not on the days following the IPO but on the days following the expiration of putback option. Our study shows that the regulation results in merely delaying the institutional investors’ documented trading behavior and provides evidence that the relationship between the underwriter and the institutional investors affects the trading of institutional investors.
Keywords:IPO  Underwriter  Regulation  Institutional investors  G15  G18  G23  G24
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