An analysis of the IPO underpricing for high-tech companies in Japan

Abstract

This paper examines the factors for IPO underpricing phenomenon in Japan between year 2002 and 2007. The paper uses the IPO sample from the high-tech industry and the sample consists of 119 IPO issues over the period 2002 and 2007. Besides, the paper examines the relationship between these factors and the degree of IPO underpricing for Japanese high-tech companies. The paper finds that issue size, market return, P/E ratio and the percentage of existing shares offered play a statistically significant role in explaining IPO underpricing for high-tech companies in Japan. The percentage of existing shares offered has the strongest relation with IPO underpricing, reflecting that IPO investors really care about how exiting shareholders view their companies’ future.