THE IMPACTS OF JAPANESE PRICE-COMPETITIVE IPO AUCTIONS VERSUS THE U.S. UNDERWRITER-PRICED IPOs

Many researchers suggest that investment bankers underprice IPOs. However, from 1989 to 1996, all Japanese IPOs were auctioned, reducing the role of underwriters. Initial returns of Japanese price-competitive IPOs are not found lower than underwriter-priced U.S. IPOs. Issue size, firm size, general market movements, insider sales levels, and underwriter quality are not highly related to initial returns under price-competitive auctions. However, there appears to be a strong partial adjustment phenomenon. Thus, price-competitive auctions did not result in significantly lower initial returns, but did reduce the impacts of many traditional variables found to significantly affect initial returns in U.S. underwriter-priced IPOs.