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

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  • KENJI KUTSUNA
  • JANET KIHOLM SMITH
  • RICHARD L. SMITH

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.

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Bibliographic Info

Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 64 (2009)
Issue (Month): 1 (02)
Pages: 505-546

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Handle: RePEc:bla:jfinan:v:64:y:2009:i:1:p:505-546

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References

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Citations

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Cited by:
  1. Hanley, Kathleen Weiss & Hoberg, Gerard, 2012. "Litigation risk, strategic disclosure and the underpricing of initial public offerings," Journal of Financial Economics, Elsevier, vol. 103(2), pages 235-254.
  2. Chang, Hsiu-Hua & Chen, Anlin & Kao, Lanfeng & Wu, Chin-Shun, 2014. "IPO price discovery efficiency under alternative regulatory constraints: Taiwan, Hong Kong and the U.S," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 83-96.
  3. Dorsman, André & Gounopoulos, Dimitrios, 2013. "European Sovereign Debt Crisis and the performance of Dutch IPOs," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 308-319.
  4. Jiang, Li & Li, Gao, 2013. "Investor sentiment and IPO pricing during pre-market and aftermarket periods: Evidence from Hong Kong," Pacific-Basin Finance Journal, Elsevier, vol. 23(C), pages 65-82.
  5. Bakke, Einar & Leite, Tore E. & Thorburn, Karin S., 2010. "Public information and IPO underpricing," Discussion Papers 2010/6, Department of Business and Management Science, Norwegian School of Economics.

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