This paper empirically examines the determinants of increase in the first day return of Japanese initial public offerings (IPOs) during 1997-2001 in TSE, Jasdaq, Mothers, Hercules (former Nasdaq Japan) and regional stock exchange markets. Initial return investigation focuses on pre-market conditions during the filing procedures. The findings show that the highest limit stocks are positively correlated with initial returns. The boom of high-tech IPO firms affects pre-market activities and high initial returns make pre-markets competitive for underwriters. Further analysis confirms that shareholders avoid wealth losses by offering few shares due to high underpricing expectations.

This paper empirically examines the determinants of increase in the first day return of Japanese initial public offerings (IPOs) during 1997-2001 in TSE, Jasdaq, Mothers, Hercules (former Nasdaq Japan) and regional stock exchange markets. Initial return investigation focuses on pre-market conditions during the filing procedures. The findings show that the highest limit stocks are positively correlated with initial returns. The boom of high-tech IPO firms affects pre-market activities and high initial returns make pre-markets competitive for underwriters. Further analysis confirms that shareholders avoid wealth losses by offering few shares due to high underpricing expectations.