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

Posted: 1 Nov 2009

See all articles by Kenji Kutsuna

Kenji Kutsuna

Kobe University - Graduate School of Business Administration

Janet Kiholm Smith

Claremont McKenna College - Robert Day School of Economics and Finance

Richard L. Smith

University of California, Riverside - Anderson Graduate School of Management

Date Written: February 1, 2009

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.

Keywords: IPO price formation, partial adjustment, underpricing, public information, long-run returns, overallotment options

JEL Classification: G24, G32, G14, G28

Suggested Citation

Kutsuna, Kenji and Smith, Janet Kiholm and Smith, Richard L., Public Information, IPO Price Formation, and Long-Run Returns: Japanese Evidence (February 1, 2009). The Journal of Finance, Vol. LXIV, No. 1, pp. 505-545, February 2009. Available at SSRN: https://ssrn.com/abstract=1498042

Kenji Kutsuna

Kobe University - Graduate School of Business Administration ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501, 657-8501
Japan

HOME PAGE: http://www.b.kobe-u.ac.jp/en/staff/kutsuna.html

Janet Kiholm Smith

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States
909-607-3276 (Phone)

Richard L. Smith (Contact Author)

University of California, Riverside - Anderson Graduate School of Management ( email )

Riverside, CA 92521
United States
951-827-3554 (Phone)

HOME PAGE: http://www.agsm.ucr.edu/

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