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48 2006 89 103 Keiji ABE This article investigates the first-day return and underwriter s ability on initial public offerings (IPOs). First, we find that, on average, offer prices of 405 IPOs listed on JASDAQ market during 1999--2004 are underpricing, and verify these anomalies are consistent with the winner s curse and information revelation hypothesis. Secondly, we also investigate underwriter s abilities to expect offer range in the preliminary prospectus and to set offer prices after book-building period. Regression tests and the fact that final offer prices are limited to preliminary upper bound lead to conclusion that the underwriter could not fully incorporate the information of issuers into the pricing. Initial Public Offerings IPO initial return

48 2006 IPO IPO IPO IPO 19992004 JASDAQ 405 1990IPO 1999 2000 JASDAQ 1994 100 JASDAQ

12 1988 1997

48 2006 JASDAQ IPO JASDAQ IPO JASDAQ IPO IPO 19992004 IPO 468388 82.9161 13.03 19 4.06 IPO 1998 19841993 JASDAQ 19951983 121989 IPO 1994 10.84 N.A. 12.73 70.27-14.00 1995 12.57 6.95 15.39 103.39-14.29 1996 15.50 11.72 17.59 98.54-11.56 1997 5.29 3.54 22.40 185.71-35.71 1998 23.78 11.24 42.27 271.43-41.41 1999 134.13 66.84 177.67 809.09-16.67 2000 21.87 6.67 58.03 300.00-64.29 2001 35.21 21.43 52.07 275.00-72.50 2002 29.82 9.69 64.79 420.31-37.04 2003 36.09 19.52 53.39 212.50-35.14 2004 95.01 66.67 98.59 515.38 0.87 1998 2001 2003 2004 N.A. not available

Winner s Curse Rock 1986 IPO IPO IPO IPO IPO Beatty and Ritter 1986 Information revelation Benveniste and Spindt 1989 IPO IPO Hanley 1993 Carter and Manaster, 1990 Megginson and Weiss 1991IPO Packer 1995 1999 2004 12 JASDAQ 468 405 IR P O P F _ F O = ^P -P O h ' P i

48 2006 P H P L Range _ H L L = ^P -P h ' P i DP P E P O _ O E E = ^P -P h ' P i H L _ = ^P + P h ' 2i IPO IPO NEEDS CD ROM ASSET AGE OSR DP N.A. N.A. CARVE RANK VENT MKT BB JASDAQ Index N.A. MKT PH JASDAQ Index MKT BPO JASDAQ Index N.A. N.A. MOMENT IPO IPO IPO SALES ROA Growth ITD IT 1999 2000 N.A. not available

DP IPO ASSET AGE IPO OSR OSR IPO IPOCARVE VENT CARVE IPO VENT IPO RANK Carter and Manaster 1990 tombstone announcements IPO MKT JASDAQ INDEX MKT PH MKT BB MKT BPO 11 MKT PH IPO IPO IPO IPO IPO MOMENT IPO IPO IPO IPO IPO SALES ROA Growth

48 2006 1999 2000 2001 2002 2003 2004 71 87 86 55 49 57 405 73 97 97 68 62 71 468 25.84 29.03 22.20 20.51 25.33 23.57 24.65 13,321 17,729 14,028 9,776 9,931 8,460 12,842 14,606 19,264 16,170 11,586 14,326 9,976 14,843 16,455 21,722 17,970 13,159 16,685 11,993 16,861 54 71 77 49 35 49 335 63 79 72 47 47 52 360 449 340 442 273 235 391 366 540 520 623 349 457 328 488 738 738 623 358 646 458 612 57 75 72 44 37 45 330 58 75 60 39 45 51 328 9,741 12,267 8,694 6,372 8,589 6,376 8,991 10,597 13,163 10,594 7,584 10,305 7,335 10,244 14,666 16,278 12,914 8,995 11,245 8,468 12,584 0.050 0.036 0.061 0.055 0.046 0.062 0.051 ROA 0.062 0.054 0.074 0.068 0.054 0.058 0.062 0.053 0.054 0.062 0.059 0.069 0.068 0.060 19992004 JASDAQ468 405 100 19992000 JASDAQ Index IPO 1999 2000 IPO ITD 1999 2000 IT 2030 ROA

IPO IR IR OLS IR = b + b ASSET + b AGE + b OSR + b DP + b CARVE + b RANK i 0 1 i 2 i 3 i 4 i 5 i 6 i BB PH BPO + b VENT + b MKT + b MKT + b MKT + b MOMENT 7 i 8 i 9 i 10 i 11 + b SALES + b ROA + b Growth + b ITD IPO i 12 i 13 i 14 i 15 i g b Range _ H L L = ^P -P h ' P i DP Range = c + c ASSET + c AGE + c OSR + c CARVE + c RANK i 0 1 i 2 i 3 i 4 i 5 i PH + c VENT + c MKT + c MOMENT 6 i 7 i 8 IPO i + c SALES + c ROA + c Growth + c ITD g 9 i 10 i 11 i 12 i DP = i + i ASSET + i AGE + i OSR + i CARVE + i RANK i 0 1 i 2 i 3 i 4 i 5 i BB PH + i VENT + i MKT + i MKT + i MOMENT 6 i 7 i 8 i 9 + i SALES + i ROA + i Growth + i ITD g IPO i 10 i 11 i 12 i 13 i c i 2 3 MKT BB MOMENT IPO TSP Ver4.5 IR IPO ASSET AGEIPO OSR JASDAQ

48 2006 P-value b 0 2.594 1.159 0.026 ASSET -0.227 0.059 0.000 AGE -0.172 0.087 0.049 OSR -1.311 0.556 0.019 DP 1.084 0.543 0.046 CARVE -0.099 0.125 0.427 RANK 0.343 0.495 0.489 VENT 0.235 0.499 0.638 MKT BB 0.179 1.166 0.878 MKT PH 3.593 1.193 0.003 MKT BPO 3.073 0.810 0.000 MOMENT IPO 0.429 0.118 0.000 SALES -0.001 0.000 0.080 ROA 0.002 0.058 0.969 Growth 0.879 1.301 0.500 ITD 0.088 0.124 0.481 Adjusted R 2 0.274 heteroskedastic-consistent standard errors 405 Winner s Curse DP DP 2003 DP IPO CARVE RANK VENT Packer 1995Packer 1995 IPO MKT BPO MKT PH MKT BB

IPO MOMENT IPO SALES ROA Growth IT ITD IT Range 2 RANK IPO MOMENT IPO IT ITD IPO IT P-value c 0 0.321 0.148 0.030 ASSET -0.003 0.008 0.702 AGE -0.005 0.008 0.515 OSR -0.118 0.064 0.066 CARVE 0.011 0.013 0.411 RANK -0.147 0.051 0.004 VENT 0.039 0.056 0.487 MKT PH -0.130 0.085 0.127 MOMENT IPO -0.017 0.006 0.005 SALES 0.000 0.000 0.271 ROA -0.003 0.007 0.693 Growth 0.239 0.131 0.068 ITD 0.063 0.011 0.000 Adjusted R 2 0.097 heteroskedastic-consistent standard errors 405

48 2006 DP MKT BB MKT PH IPO RANK IPO MOMENT IPO IPO IPO DP P-value i 0 0.206 0.090 0.023 ASSET 0.003 0.005 0.505 AGE -0.005 0.005 0.283 OSR -0.072 0.040 0.073 CARVE 0.001 0.007 0.880 RANK -0.116 0.032 0.000 VENT -0.042 0.037 0.260 MKT BB 0.160 0.072 0.027 MKT PH 0.047 0.056 0.396 MOMENT IPO 0.017 0.004 0.000 SALES 0.000 0.000 0.144 ROA -0.005 0.004 0.190 Growth 0.048 0.073 0.511 ITD 0.008 0.007 0.293 Adjusted R 2 0.098 heteroskedastic-consistent standard errors 405

IPO 1999 73 0.00 100(100.0) 0.00 2000 97 0.00 100(49.48) 0.00 2001 97 0.00 100(82.47) 0.00 2002 68 0.00 100(72.06) 0.00 2003 62 0.00 100(82.26) 0.00 2004 71 0.00 100(98.59) 0.00 IPO 1990 1994 1,632 26.10 54.20 19.70 1995 1998 1,752 25.00 49.10 25.90 1999 2000 803 18.10 36.80 45.10 2001 80 25.00 60.00 15.00 Ritter and Welch 2002 JASDAQ JASDAQ 1997

48 2006 IPO 1998 IR IPO 19992004 JASDAQ IPO 405 IR Winner s Curse Range DP IPO MOMENT IPO IPO DP 2004 2005

2005 2003 E O 2001 ^= P ' P -1h DP [ ] Beatty, R. P. and J. R. Ritter, 1986, Investment banking, reputation, and the underpricing of initial public offerings, Journal of Financial Economics, vol.15, pp.213-232. [ ] Benveniste, L. M. and P. A. Spindt, 1989, How investment bankers determine the offer price and allocation of new issues, Journal of Financial Economics, vol.24, pp.343-361. [ ] Carter, R. and S. Manaster, 1990, Initial public offerings and underwriter reputation, Journal of Finance, vol.45, pp.1045-1067. [ ] Hachiya, T. and Xi Zheng, 2004, The effect of information asymmetry, ownership change, and regulation change: An empirical study of initial returns of the IPOs in JASDAQ market,, vol.23, pp.56-76. [ ] Hanley, K. W., 1993, The underpricing of initial public offering and the partial adjustment phenomenon, Journal of Financial Economics, vol.34, pp.231-250. [ ] Hebner, K. J. and T.Hiraki, 1993, Japanese initial public offerings, Restructuring japans financial markets, edited Walter, I. And T.Hiraki, Business one Irwin Publishers, pp.79-113. [ ] Lowry, M. and G. W. Schwert, 2004, Is the IPO pricing process efficient?, Journal of Financial Economics, vol.71, pp.3-26. [ ] Megginson, W. L. and K. A. Weiss, 1991, Venture capitalist certification in initial public offerings, Journal of Finance, vol.46, pp.879-903. [ ] Packer,F., 1995,,, vol.33, pp.36-53. [10] Ritter,J.R. and I.Welch, 2002, A review of IPO activity, pricing, and allocations, Journal of Finance, vol.57, pp.1795-1828. [11] Rock, K., 1986, Why new issues are underpriced, Journal of Financial Economics., vol.15, pp.187-212. [12] 2001 vol.44 pp.79-96. [13] 2005 pp.194-205 [14] 1995 vol.33 pp.25-35. [15] 1998 pp.31-62. [16] 1998vol.6 pp.75-90. [17] 2004 vol.5 pp.91-106. [18] 2005 IPO 29 [19] 1995 vol.33 pp.13-24. [20] 2003 vol.14 pp.47-78.