RIEB Seminar / Kanematsu Seminar

14:00 - 15:25

Topic

Interpersonal Projection in the Workplace

Speaker

Takeharu SOGO (SKEMA Business School)

Abstract

Interpersonal projection bias, where individuals perceive others' states as similar to their own, is a common phenomenon. In this seminar, I will explore the impact of this bias in the workplace. Specifically, I will discuss how optimal contracts may change when agents exhibit interpersonal projection bias within a moral hazard model with adverse selection. Additionally, I will examine how a principal's projection bias can lead to issues such as workplace harassment.

15:35 - 17:00

Topic

Underpricing in the IPO Market with Sentiment Traders: An Experimental Study

Speaker

Takuya NAKAIZUMI (Department of Economics, Kanto Gakuin University)

Abstract

In this study, we experimentally investigate the cause of underpricing and underperformance in the IPO market. Two well-known anomalies of IPOs are high first-day returns and subsequent long-term underperformance. To address this issue, we investigate the IPO market model of Ljungqvist et al. (2006) in the laboratory. In this model, a fraction of sentiment traders enters the market in each period. They irrationally believe that the IPO price is higher than the fundamental value. Other traders forecast IPO prices rationally, i.e., they know the probability P that the IPO price will fall to the fundamental value. The issuing company and an underwriter take the behavior of these traders into account. The underwriter decides in each period how many shares to sell in the IPO market. Ljungqvist et al. (2006) show that underpricing and underperformance occur even when the underwriter has no bargaining power and the firm can set the price as high as the IPO market price under a certain condition.
In our pilot experiment, the firm exogenously sells the stock to subjects playing the role of the underwriter. The behavior of rational and sentimental traders is exogenously determined by the computer according to the theory. We have two treatment variables, the probability P that the IPO price will fall to the fundamental value and the number of initial shares Q. The higher P, the more likely it seems that underpricing will occur. However, this is not the case in our pilot experiment. Rather, underpricing is more likely to occur when P is large. The higher P is, the more risk-averse subjects (underwriters) might be expected to sell the shares in earlier periods. But the subjects (underwriters) are more likely to sell the stock in later periods when P is large in order to keep the price high and preserve enough revenue in the earlier period. We found that the observed behavior maximizes the subjects'(underwriter's) profit.