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Rev Fin 2003; 16:949-982
© 2003 the Society for Financial Studies

Underwriter Certification and Japanese Seasoned Equity Issues

John W. Cooney, Jr.
Texas Tech University

Hideaki Kiyoshi Kato
University of Tsukuba

James S. Schallheim
University of Utah

Address correspondence to James S. Schallheim, David Eccles School of Business, KDGB 210, University of Utah, Salt Lake City, UT 84112, or e-mail: finjs{at}business.utah.edu

Abstract

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.


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