Financial Conglomeration, IPO Underwriting, and Allocation in Japan

Using a sample of 779 Japanese IPOs over the 2002-2012 period, we find a strong retail orientation in new share allocation. As for institutional allocation, the most complete universal banking form of underwriting neither advantages nor disadvantages investors in affiliated mutual funds, both initially and in the aftermarket. One incomplete form of underwriting through non-bank lenders only involved in pre-IPO financing yields a long-run advantage to investors in affiliated funds. These results are consistent with the information advantage hypothesis on IPO pricing and share allocation under regulation overreach and under-reach, respectively. We find little evidence of conflict of interest in institutional allocation of IPO shares by main bank underwriters. Financial conglomerates have helped many small firms go public and stay in the market, even with poor performance.

Keywords: financial conglomerates, IPOs, underwriting, mutual funds

JEL Classification: G14, G24, G38

Suggested Citation: Suggested Citation

Hiraki, Takato and Honda, Toshiki and Ito, Akitoshi and Liu, Ming, Financial Conglomeration, IPO Underwriting, and Allocation in Japan (January 24, 2018). Asian Finance Association (AsianFA) 2018 Conference, Available at SSRN: https://ssrn.com/abstract=3108499 or http://dx.doi.org/10.2139/ssrn.3108499