An Event Study On The Market Effect And Tunneling Of Private Placement In Chinese Market

Since the China Securities Regulatory Commission issued "the issuance of securities of listed companies' management approach" on May 7, 2006, private placement became the desirable choice of listed company and it is very popular to investors.The lack of appropriate theory, empirical research and the guidance of laws and regulations make private placement still in exploratory stage. No clear profit requirements, pricing benchmark date's fuzzy norms etc exposed problems such as, the deliberate manipulation of stock prices, not clear price significance, the major shareholder's tunneling, and these all have become controversial theoretical study hot. Whether listed companies make rent-seeking through private placement are the new issues, this article also expect to break through the status quo and find the basis of empirical research.The paper collects relevant data from a sample of listed firms that conduct private placement from the year 2006 to 2007 and studies the Market Effect of private placement announcement to determine whether existence of a massive transfer of wealth phenomenon.Through empirical analysis, this paper argues China's listed companies have an additional short-term wealth effect. Because of nearly 25 days before the pricing benchmark stock price performance being poor, the issue price discount being inter-group significant difference, related party transactions increasing, and the domestic orientation showed a massive transfer of wealth.