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Public Information, IPO Price Formation, and Long‐Run Returns: Japanese Evidence
Author(s) -
KUTSUNA KENJI,
SMITH JANET KIHOLM,
SMITH RICHARD L.
Publication year - 2009
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2008.01440.x
Subject(s) - initial public offering , underwriting , issuer , transparency (behavior) , business , monetary economics , public information , price formation , information asymmetry , accounting , financial economics , economics , finance , public administration , political science , law
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.