Journal
JOURNAL OF CORPORATE FINANCE
Volume 61, Issue -, Pages -Publisher
ELSEVIER
DOI: 10.1016/j.jcorpfin.2018.08.011
Keywords
Private placements; Chinese stock market; Regulatory intervention; Long-term performance
Categories
Funding
- National Social Science Fund of China [17BGL076]
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In this study of private placement of public equity (PEP) in China, we examine post-placement stock performance and the possible bases for regulatory approval for PEP applications. We find that firms receiving approvals for PEP issues are financially stronger than those rejected by regulatory authorities and experience significant positive long-term abnormal returns following the placements. These long-term abnormal returns are higher when controlling shareholders participate in the placements and when the capital raised is allocated to asset restructuring or M& As. The evidence supports the view that the government offers a helping hand by screening PEP applications and approving those with promising investments and capable investors. Investor overoptimism about investment opportunities at firms that issue equity privately is constrained because PEP participants can effectively monitor and discipline management and help improve investment efficiency over time.
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