Underpricing, subsequent equity offerings, and the long-run performance of Japanese IPOs

Takehiko Isobe, Akitoshi Ito, Joseph P. Kairys

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

Using data on IPOs that are issued in Japan during January 1975-March 1989, we examine the deliberate underpricing and overreaction hypotheses to explain high initial returns at offering dates. Specifically, we analyze the cross-sectional pattern of the short- and long-run performance of IPOs. The obtained results indicate that the deliberate underpricing theories which we examine are unable to explain the high initial returns on the Japanese IPOs. Furthermore, for the average of the IPOs, the empirical results are not consistent with the overreaction hypothesis. However, there is evidence consistent with the hypothesis that for a certain minority group of IPOs, the high initial returns occur due to overreactions by investors. We interpret the overall results as indicating that the high initial returns on the Japanese IPOs can be attributed to a mixture of both underpricing and investor overreaction. We conjecture that the binding regulations in Japan led to underpricing.

Original languageEnglish
Pages (from-to)237-259
Number of pages23
JournalAsia-Pacific Financial Markets
Volume6
Issue number3
Publication statusPublished - 1999 Dec 1
Externally publishedYes

Keywords

  • Deliberate underpricing
  • Investor overreaction
  • Japanese initial public offerings
  • Long-run performance
  • Signaling theory

ASJC Scopus subject areas

  • Finance

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