Japanese IPO Intellectual Capital Information Disclosures and the Effects on their Long-Term Stock Price Performance



This article studies the disclosure practices of Japanese IPO prospects as a proxy for the capital cost after a company is admitted to the stock exchange, and the subsequent effect on their long-term stock performance and the bid-ask spread. A disclosure index methodology was imposed on 120 IPO prospects in 2003 in order to define the nature and extent of intellectual capital disclosures and study the effects of the asymmetrical information on stock price valuation. Intellectual capital information is important for the capital market, because it often leads to significantly better long-term performances compared to reference portfolios. Furthermore, the initial disclosure of IC is important in an IPO setting, because it reduces the long-term bid-ask spread. However, there are some limitations to our findings. The data presented here in reflects only one year of IPO’s on the Tokyo Stock Exchange. Therefore, the results must be read with consideration specifically to the stock market environment in 2003, and may not reflect the normal cyclical market year. Analysts and investors, however, can still attain higher long-term returns by understanding IC. This seems contradictory to the fact that their interest in IC disclosure is low. This article is the first to discuss the correlation between voluntary disclosure practices and the long-term effects of asymmetrical information in Japan.

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Christian Nielson

Gunnar Rimmel