Investing for Beginners .EU, investing

investingforbeginners.eu You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets.
Peter Lynch

Investment Dictionary


Browse by search:

Browse by Letter: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z All

Greenshoe

 

greenshoe is an option to sell or buy shares during initial public offering IPO. This option is agreed between the company that goes public and the IPO organizer (some corporate finance firm).

 

Theoretically greenshoe is prepared to offer more shares (up to 15%) for investors in case of high oversubscription to stabilize the stock price. However, because of flipping popularity more often greenshoe is used to buy stocks on the stock exchange to maintain some increase in the price of stock. 

 

If the price of shares would drop during first day of trading after IPO it would be a negative psychological sign for future investments in company’s shares. To make IPO successful and bring a confidence for investors some price increase is needed, that is the reason why greenshoe is used. 

 

In case of high oversubscription greenshoe sells more shares on the market. But if very high oversubscription (over-allotment) happens it means that too low price was determined and IPO wasn’t very successful for the issuing company (it could have raise more capital for higher share price).

 






Last searches: standard , associate , capital structure , value investing , sell stock , risk free , return on investment , public market , property investment , platform , investing , investment , beginners , stocks