Until October 1997, firms wishing to go public in Japan were required to use a hybrid auction process where up to half of the issue (the auction tranche) was offered to investors via a discriminatory auction. Remaining shares (the public offer tranche) were sold a few days later by a firm...

Investments in new ventures involve financial contracts between an entrepreneur and outside investors. Investors, such as venture capital firms, represent well-diversified investors. In contrast, the entrepreneur must commit a substantial fraction of human and financial capital to the venture....