What is a Green Shoe Option?
A green shoe option is a clause contained in the underwriting agreement of an initial public offering (IPO). Also known as an over-allotment provision, it allows the underwriting syndicate to buy up to an additional 15% of the shares at the offering price if public demand for the shares exceeds expectations and the stock trades above its offering price.
How Does a Green Shoe Option Work?
Some underwriting agreements. This is usually the case when the issuer wants to fund a specific project at a pre-determined cost and does not want to be responsible for more capital than it originally sought.agreements do not include greenshoe options in their
Why Does a Green Shoe Option Matter?
The Green Shoe Company, now called Stride Rite Corp., was the first issuer to allow the over-allotment option to its underwriters, hence the name.
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