Concept Questions

16.4a What do underwriters do? 16.4b What is the Green Shoe provision?

6Occasionally, the price of a security falls dramatically when the underwriter ceases to stabilize the price. In such cases, Wall Street humorists (the ones who didn't buy any of the stock) have referred to the period following the aftermarket as the aftermath.

7The term Green Shoe provision sounds quite exotic, but the origin is relatively mundane. The term comes from the name of the Green Shoe Company, which, in 1963, was the first issuer that granted such an option.

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

VI. Cost of Capital and Long-Term Financial Policy

16. Raising Capital

© The McGraw-Hill Companies, 2002

PART SIX Cost of Capital and Long-Term Financial Policy

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