Private Placement Of Stock

China’s equity private placement started to develop after 2006, gradually, it became the key mechanism in China’s SEO market. This paper finds that, 1) Size of private placement is higher than the other two kinds of SEO; 2) it developed fast in bear market; 3) smaller firms prefer private placement to other kinds of SEO; 4) firms with more information asymmetry prefer private placement to other kinds of SEO.Though the amount of equity private placements increased in Chinese stock market, scholars also need to investigate the pricing of private placement and the factors that have effect on pricing, the short- and long-term market reaction to private placement, the behavior of investors. Thus, this paper focuses on the above three questions.First, Using sample of A-share equity private placements through 2006 to 2013, this paper investigates the pricing of private placement empirically and finds that, 1) block shareholders are inclined to entrench smaller shareholders’ interest via increasing price discount; 2) for firms with more information asymmetry, a larger price discount is as compensation for investor who participates private placement.Second, for investors’ long-run wealth effect, this paper does not find any factors that significantly affect the long-run performance of stock price after placing private equity. But for investors’ short-run wealth effect, this paper finds that, 1) the larger size of private placement, the smaller short-run wealth effect; 2) the higher price, the larger short-run wealth effect; 3) market responds positively to private placement with block shareholders; 4) the wealth effect is larger in bear market than that in bull market.Finally, this paper investigates the level of cash dividend and earning management after placing private equity, and finds that, 1) when block shareholders participate the placement, cash dividend will be increased; 2) both block and institutional shareholders do not affect earning management, but negative earning management is significantly positively related to institutional investors.