Graduation of initial public offering firms from junior stock markets: evidence from the Tokyo Stock Exchange

Abstract

This study explores the graduation of initial public offering (IPO) firms and regulatory reforms in junior stock markets. Using firms listed on the two junior stock markets of the Tokyo Stock Exchange (TSE), the Market of the high-growth and emerging stocks (MOTHERS) and JASDAQ Securities Exchange (JASDAQ), we examine the factors that affect the time to graduation to the TSE main markets. We find that young IPO firms and those with high research and development (R&D) intensity are less likely to graduate from the TSE junior markets (MOTHERS and JASDAQ). The results also reveal that listing regulations on graduation to the TSE main market, which were introduced only to the MOTHERS, but not to the JASDAQ, accelerate the graduation of IPO firms. Furthermore, we provide evidence that IPO firms that ultimately graduate to the TSE main markets exhibit better performance.