Financial Conglomeration, IPO Underwriting, and Allocation in Japan

62 Pages Posted: 20 Jul 2017

See all articles by Takato Hiraki

Takato Hiraki

International University of Japan

Toshiki Honda

Hitotsubashi University - Graduate School of International Corporate Strategy

Akitoshi Ito

Hitotsubashi University Business School

Ming Liu

International University of Japan; International University of Japan

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Date Written: July 17, 2017

Abstract

We examine whether financial conglomeration enhances efficiency of capital allocation or conflicts of interest, focusing on pricing and allocation of IPO stocks in Japan. Regarding underwriting of IPO stocks, our results are consistent with the bank certification hypothesis. As for IPO allocation, the main bank underwriters allocate little to mutual funds, but when they do, they allocate the more underpriced IPOs to unaffiliated mutual funds. We also find some locally consistent evidence supporting the nepotism hypothesis in aftermarket returns of IPO shares. Bank-involved allocation to mutual funds is, however, unrelated to risk-adjusted return (i.e., real quality) and to bank loan reduction in the aftermarket. Overall, the main banks and underwriters do not co-work to allocate new shares in a way that further certifies IPO quality, prompting institutional investors to hold longer in the aftermarket. This is in sharp contrast to U.S. IPO share allocation practice.

Keywords: Financial Conglomerates, IPO, Underwriting, Mutual Funds

JEL Classification: G14, G24, G38

Suggested Citation

Hiraki, Takato and Honda, Toshiki and Ito, Akitoshi and Liu, Ming, Financial Conglomeration, IPO Underwriting, and Allocation in Japan (July 17, 2017). Available at SSRN: https://ssrn.com/abstract=3004190 or http://dx.doi.org/10.2139/ssrn.3004190

Takato Hiraki

International University of Japan ( email )

Research Institute
Koksai-cho 777
Minami-uonuma-shi, Niigata-ken 949-7277
Japan
+81-25-779-1481 (Phone)
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Toshiki Honda

Hitotsubashi University - Graduate School of International Corporate Strategy ( email )

2-1-2 Hitotsubashi, Chiyoda-ku
Tokyo 101-0003, Chiyoda-ku 101-8439
Japan

Akitoshi Ito (Contact Author)

Hitotsubashi University Business School ( email )

2-1-2 Hitotsubashi
Chiyoda-ku, Tokyo, 101-8439
Japan

Ming Liu

International University of Japan ( email )

Yamato-machi
Niigata-ken 949-7277
United States

International University of Japan ( email )

Yamato-machi
Niigata-ken 949-7277
United States

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