Public Information, IPO Price Formation, and Long‐Run Returns: Japanese Evidence

Abstract

The price formation process of JASDAQ IPOs is more transparent than in the United States. The transparency facilitates analysis of important issues in the IPO literature-why offer prices only partially adjust to public information and adjust more fully to negative information, and why adjustments are related to initial returns. The evidence indicates that early price information conveys the underwriter's commitment to compensate investors for acquiring and/or disclosing information. Offer prices reflect pre-IPO market values of public companies and implicit agreements between underwriters and issuers that originate well before the offering. Underadjustment of offer prices is substantially reversed in the aftermarket. Copyright (c) 2009 The American Finance Association.

Allocation to Anchor Investors, Underpricing, and the After‐Market Performance of IPOs

“…Furthermore, anchor investors are allotted a larger fraction of shares in smaller IPOs and in smaller firms. This is consistent with prior research, which shows that the auction regime is less costly for small issuers (Kutsuna, Smith, and Smith, 2004) and that relationship participation is higher in IPOs of smaller firms (Binay, Gatchev, and Pirinsky, 2007).…”

Cross-country IPOs: What explains differences in underpricing?

“…Their study finds that the IPO pricing, based on a fixed price/earnings ratio pre-determined by the regulators, contributed significantly to the IPO underpricing in China. Similarly, Kutsuna et al (2009) study the effects of public information on offer price formation in Japan and finds that offer prices closely reflect pre-IPO implicit agreements between underwriters and issuers that originate well before the offering. These country-level idiosyncrasies can affect out results.…”

“…13 Since a higher level of analyst following is associated with a lower level of insider-outsider information asymmetry, we have the following hypothesis 14 : 9 This index is based on legal rules prevailing in 2003, and focuses on private enforcement mechanisms, such as disclosure, approval, and litigation, governing a specific self-dealing transaction. 10 See, for example, Cheung et al (2009) and Kutsuna et al (2009). 11 See, for example, Derrien and Kecskes' (2007) paper for detailed discussion.…”

Effects of Institutional Investors’ Bidding Information on Offer Prices and Initial Returns of IPOs

“…In many IPOs, the finalized offer price differs from the midpoint of the filing price band (henceforth filing price) in the early prospectus. Log (Offer price revision) is measured through the log value of the ratio of the final offer price over the filing price (Kutsuna et al ., ). Some studies have used the percentage of the finalized offer price over the filing price, () (Hanley, ; Cornelli and Goldreich, ).…”