The long-run underperformance of initial public offerings (IPOs) suggests that aftermarket prices are overvalued. According to the theory of heterogeneous beliefs and short-sale constraints, the aftermarket price of IPOs is overvalued; in addition, their performance deteriorates when the mean level of optimism and degree of divergence of investors’ opinions increase. I examine this phenomenon by estimating the mean and divergence of investor opinion distribution by focusing on Japanese auction-method IPOs. According to the results, both optimism and divergence cause the overvaluation of IPO’s first-day market price; however, only the mean level of optimism is statistically significant in explaining post-IPO underperformance.

As an alternative version of the side-payment model, this paper presents a demonstration of how the necessity of winning majority support of shareholders influences the relation between a blockholder's monitoring incentive and a firm's dividend policy. When dividend-averse individuals collectively hold a majority stake in a dispersed ownership structure, a dividend-seeking blockholder might be compelled to propose lower dividends than the tax-optimum to dominate the zero-dividend proposal. Under such circumstances, the blockholder has an incentive to provide unprofitable monitoring activity as long as the private benefits of tax-saving are greater than the pecuniary loss from the monitoring activity.