Small deals have historically dominated Japan’s IPO market. Over the past decade, tiny initial offerings accounted for about 82% of the country’s total IPOs, based on the average of Bloomberg-compiled data from 2015 to 2024. By comparison, small deals made up 76% of IPOs in India and 55% in Hong Kong.
“It’s important for newly listed firms to continue growing after an initial offering and the market is saying ‘no’ to those companies that can’t achieve sustainable growth,” said Hiroaki Tomori, an executive fund manager at Mitsubishi UFJ Asset Management. Small listings are usually underperformers, he added.
Small firms often report volatile earnings and leave money on the table in their initial offerings, according to more than 20 interviews with bankers, accountants, investors and corporate executives involved in small IPOs. Institutional investors also tend to shun such illiquid share sales.
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The exchange has responded to such concerns, announcing a higher bar for companies to remain listed on its startup market. Firms will be required to maintain a market capitalisation of at least ¥10 billion after five years, up from the current requirement of ¥4 billion after 10 years.
Chief executive officer Hiromi Yamaji of Japan Exchange Group Inc, which operates the TSE, said the goal of the market reforms is not to eliminate smaller IPOs, but to encourage growth-confident firms to come to market.
With larger IPOs, “appropriate pricing is becoming easier to achieve, especially from the perspective of increased trading after listing,” said Hiroyuki Tada, executive director at IPO department of Nomura Securities Inc. “The trend that companies aim for an IPO after getting larger is likely to continue.”
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The environment may make it harder for little-known companies with limited growth potential to list and get the funding that they need, said Takashi Kaneko, professor emeritus at Keio University.
The decline in smaller listings reduces “distortions in the capital market,” said Kaneko, who has collaborated with Jay Ritter, a professor at the Warrington College of Business at the University of Florida, on IPO research. Japan is facing “a major turning point in becoming an advanced IPO country,” he added.
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