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Journal ArticleDOI

The Certification Role of pre-IPO Banking Relationships: Evidence from IPO Underpricing in Japan

Yoshiaki Ogura
- 01 Jun 2017 - 
- Vol. 68, Iss: 2, pp 257-278
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TLDR
In this article, the authors find empirical evidence that pre-IPO relationships with commercial banks through lending and investment via their venture capital subsidiaries significantly reduce IPO underpricing in Japan, which is expected to come mainly from reducing either the investors' winner's curse or signaling incentive of IPO firms, rather than from the reduction in information rent for institutional investors participating in the book-building process.
Abstract
We find empirical evidence that pre-initial public offering (IPO) relationships with commercial banks through lending and investment via their venture capital subsidiaries significantly reduce IPO underpricing in Japan. This findings suggest that a pre-IPO banking relationship certifies the low risk of an IPO firm. Given the fact that institutional investors are a minority in the allocation of IPO stocks in Japan, this effect is expected to come mainly from reducing either the investors' winner's curse or the signaling incentive of IPO firms, rather than from the reduction in information rent for institutional investors participating in the book-building process.

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References
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Journal ArticleDOI

The Benefits of Lending Relationships: Evidence from Small Business Data

TL;DR: In this article, the authors empirically examined how ties between a firm and its creditors affect the availability and cost of funds to the firm and found that the primary benefit of building close ties with an institutional creditor is that the availability of financing increases.
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Relationship Lending and Lines of Credit in Small Firm Finance

TL;DR: The authors examined the role of relationship lending in small firm finance and found that borrowers with longer banking relationships pay lower interest rates and are less likely to pledge collateral, consistent with theoretical arguments that relationship lending generates valuable information about borrower quality.
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Why new issues are underpriced

TL;DR: In this paper, the authors present a model for the underpricing of initial public offerings based on the existence of a group of investors whose information is superior to that of the firm as well as that of all other investors.
Journal ArticleDOI

Initial Public Offerings and Underwriter Reputation

TL;DR: In this article, the authors examined the returns earned by subscribing to initial public offerings of equity (IPOs), and they showed that IPOs with more informed investor capital require higher returns, and that prestigious underwriters are associated with IPOs that have lower returns.
Journal ArticleDOI

Relationship Lending and Lines of Credit in Small Firm Finance

TL;DR: In this paper, the authors examined the role of relationship lending in small firm finance and found that borrowers with longer banking relationships pay lower interest rates and are less likely to pledge collateral.
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