Research On Pricing And Economic Consequences Of Private Placement

Private placement as a main way of equity of capital markets to refinance in China, it exists a certain number phenomenon of “private placement”. However before the non-tradable shares reform(sales) finished, it didn’t become a main way and channel in our equity of capital markets to refinance. There was a turning point in 2006. In this year the function of capital market to refinance reopened, private placement was be determined as a legal. With the developing of the non-tradable shares reform, it was springing up and was be matured. The successfully implement of non-tradable shares reform make it developed rapidly. Finally, it becomes a main way and method in our equity capital market.Private placement has gained in favor of the market owing to its timing of appearance. Non-tradable shares reform was pushed heavily in our country and its aim is to solve the conflict between the different size shareholder for example transfer benefits and through related transactions, according to solve the limited of non-tradable shares, strengthen the supervision of management. The implementation of the reform of non-tradable shares provides an excellent condition for the smooth implementation of private placement. Second, private placement compared to other financing way has irreplaceable advantages. Its object is a major shareholder in the company and institutional investor, it needn’t finance to minority shareholders and its way is benefit for restoring confidence in the market. Coupled the locking system constraints, the offering will not increase the pressure on the spot market and can reduce the impact on the secondary market. More importantly, if larger shareholders add high quality assets into listed company according private placement, it will improve the quality of company and avoid the competition and the related party transactions between major shareholders and listed company fundamentally. So it can achieve a win-win situation between larger shareholders and minority shareholders. And it is benefit for listed company to bring in strategic and institutional investor. They can improve the company’s operation and governance. Overall, such as the way of private placement appeared has positive significance for the capital market developed and improvement in our country.From 2006 to 2013, capital market had experienced extremely volatile, covering a cycle from bull market to bear market. The experiences provide a rare opportunity for research. Even under the condition of capital market investor sentiment from 2006 to 2007, the listed companies gain profits easily through private placement. However after the financial crisis, even in post-financial crisis era, listed company, the public and private offering, PE and various funding agencies are all popular with the private placement. They still can achieve revenues even when the IPO stopped. It means the private placement has incomparable advantages. Although the secondary phenomenon is complicated, there is a very interesting topic to study. It has a strong practical significance to study the reason、motivation and purpose why the listed companies and institutional investors pay more attention on this way.Throughout the entire capital market, behind the various forms of private placement, if it can accordance with regulators’ original intention, avoid the concerns of the market for listed companies "circle money", increase the value of the company, thicken of the earnings per share, achieve "win-win" between large shareholders and minority shareholders, improve the operation and management of the company, all of these questions need to be further studied. The key issue is:(1) Reasonable and fair of the pricing of private placement. Because the pricing is directly related to the offering and decided how to distribute the company’s benefit between the shareholders acquiring the offer(including part of original shareholders and new one) and shareholders no offer, and thus affect the interests of most large and medium shareholders;(2) The short-term and long-term market reaction of private placement and the company’s long-term performance. Specifically, they are the short and long-term market reaction of private placement, the market acceptance of the purchase of listed companies,whether the private placement is good or bad news, which factors influence and restrict the issuing company, the future growth of the business performance in the listed company which implemented private issue? After all, no matter how complex the purchase pricing, in the long term, the success of the purchase behavior will always be proved by the capital market.Meanwhile, the impure motives in the same behavior will also be identified by the market.This paper starts from the system background of private placement and comb the purchase of this way developing in our country. from the perspective of offering to larger shareholders、institutional investors and small investors and balanced their interests, we analyze the pricing of private placement under the action of three types. On this basis to find out the core factors that affect pricing options and reveal the fairness and influence factors of the private placement pricing mechanism. It is benefit for regulators further standardize the pricing of private placement to provide theoretical supporting. Based on agency theory, information asymmetry theory to analyze the large shareholders’ and institutional investors’ different roles in the processing of private placement, explain their impact on the economic consequences of listed companies’ offering. Thus we can find the most popular model of private placement in our market and make the studying view of private placement becoming more comprehensive.Whether pricing factors research,short-term announcement effect and long-term yields correlation research and long-term performance research,we always focus on the checks and balance with conspiracy argument of institutional investors to large shareholders to discuss. This paper fully reveals the different influence from larger shareholders and institutional investors and economic consequences. It also studies the larger shareholders weather do supervision and support effect in this progress and the institutional investor has supervision effect. We acquire the significant conclusions. This research enrich the study of directional issuance issued object and the study of the theory of the private placement market reaction to explain, in practice part it has positive role in how to give play to the role of institutional investors positive, more and better in the purchase behavior of listed companies of supervision of large shareholders. This paper is a positive and beneficial attempt in order to better protect the interests of small and medium-sized investors.In order to make the research more clearly, we narrow the sample in empirical research, excluding the objects outside of the large shareholders and institutional investors. The offering styles only can be divided into three categories,including subscribed by large shareholders,by institutional investors, or by them together. The issue of low price is not only the compensation for their supervision or collusion’ behavior, but also an evidence that large shareholders’ supporting and occupation. At the same time the theory of risk also can be seen as a compensation of the future earnings’ risk. Because large shareholders and institutional investors acquire the discount yield is just a small part in the link of private placement. If only studying the starting point of private placement---discount and pay no attention on the short-term effect, long-term performance and yields, even the relationship between subscription object and discount ratio, the conclusion may be slightly thin. Accordingly, from the view of offering object on the longitudinal, to analyst the effect of monitor and conspiracy between large shareholders and institutional investors, the supporting and occupation role of large shareholders in listed company. This way makes the research process more completely.Not only the pricing factors research, but also the relationship between short-term announcement effect and long-term yields research, as well as long-term performance research, this article revolved around large institutional investors, shareholders and management oversight and collusion, big shareholder support and occupation effect of demonstration.From the analysis of the discount rate, discount rate and long-term profitability, this article probe whether large shareholders have support and occupation effect, whether institutional investors have supervision conspiracy effect. The conclusions is significantly obtained in private placement issue. This paper enriches the related research of offering object and explains the reaction of pricing and market from the perspective of agency theory and information asymmetry. It is convenient for regulators to supervise and constraint the large shareholders’ action in private placement better. Then it also can guide the institutional investors playing a positive supervision role. Finally, it is benefit to protect the interests of small and medium-sized investors and standardize the implementation of the private placement of listed companies.