Research On Announcement Effect Of Private Placements In China

The security private placement is the principal element in today's world capital market and a comparatively mature financing instrument in developed countries and areas .As phase's success of Share Structure Split Reform was achieved on 8^th May 2006,the financing function of the stock market was restored. Since then private placement was authorized and a fever of private placement by public firms had appeared in Chinese stock market. From then on, private placement becomes the most important measure to refinance and merger for public companies and it is very popular to investors. Most researches focused on the whole announcement effect of private placement, but leave out of consideration of different price performances stem from different purposes of private placement. Little paper considered the different announcement effects come from whether the substantial shareholder has a share in the private placement. When substantial shareholder takes part in the issue, investors will regard it as a good signal of future development of the listed company.Using the event study method, this paper analyzed the price performances of private placement firms. A positive announcement effect of private placement and a positive cumulative abnormal return were found after the empirical study. This paper groups the samples by different tactics or different purchasers and uses 2-independent-samples T test and nonparametric test to examine whether there is a significant difference between the abnormal return of the samples. The paper found that a higher abnormal return exists in the private placement which aims to purchase substantial shareholder's assets, and that a more significant more powerful announcement is generated when substantial shareholder purchases the issuing stocks with cash.The research results will help investors understanding the market's response to the announcement of private placement and give them suggestions when they decide to invest on these stocks. The paper also is valuable to stock market regulator to guide the activity of private placement and protect the interest of investors.