What is green shoe options and why it is called like that? Similarly what is green field project?
Georgia asks:
I come across These words when companies come out with IPO( Initial public offer) or when they inform expansion plans.
I come across These words when companies come out with IPO( Initial public offer) or when they inform expansion plans.
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Greenshoe Option: Legally referred to as an over-allotment option, a provision contained in an underwriting agreement which gives the underwriter the right to sell investors more shares than originally planned by the issuer. This would normally be done if the demand for a security issue proves higher than expected. The name comes from the fact that the “Green Shoe Company” was the first to issue this type of option.
A greenshoe option can provide additional price stability to a security issue, since the underwriter has the ability to increase supply and smooth out price fluctuations if demand surges too high.
Greenfield Investment: A financial investment by a company or a government to construct a project in basic components. Examples of green field investments are new factories and power plants which can be considered basic components.