Public placements of seasoned equity issues in Japan

Cooney, John W.; Kato, Kiyoshi; Schallheim, James S.

In sharp contrast to results of empirical tests investigating the U.S. market, the announcement of a seasoned equity issue by Japanese firms causes stock prices to increase. A major institutional difference between the two markets involves the underwriting process through which the offer price is set. In the U.S., the offer price is typically set less than 24 hours before the stock is sold to the public. Offer prices in Japan, however, are announced a median of seven trading days before the end of the subscription period and is set at substantial discount below the current stock price. In addition, there are two ways to determine the offering prices, the fixed price method and the formula price method. The underwriters' certification hypothesis fits nicely under this institutional environment because fixed price issues offer more certification. Average announcement effect for firms using the fixed price method is positive, while the announcement effect is zero for the firms using the formula price method. In addition, after controlling for offering method, a significant negative correlation is found between the announcement day return and the discount. We also examine abnormal returns around the subscription period and issue day.

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Academic Units
Center on Japanese Economy and Business
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Center on Japanese Economy and Business Working Papers, 109
Published Here
February 9, 2011