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Underwriter Certification and Japanese Seasoned Equity Issues

John W. Cooney1; Hideaki Kiyoshi Kato2; James S. Schallheim3

1 Texas Tech University · 2 University of Tsukuba · 3 University of Utah

Review of Financial Studies 2003

In sharp contrast to results in the United States, the average stock price response to an announcement of a seasoned equity issue in Japan is positive. Offer prices in Japan, unlike the United States, are announced several days before the beginning of the subscription period and incorporate a substantial discount. We suggest that the positive announcement effects in Japan are consistent with the underwriter's certification of the issuing firm's value. We characterize the underwriter's risk as a put option and find a positive association between the underwriter's risk and the announcement returns, as well as other results consistent with underwriter certification. Copyright 2003, Oxford University Press.

DOI
10.1093/rfs/hhg018
Volume
16 (3)
Pages
949-982
Language
en
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