An Empirical Study On The Long-run Market Performance Of Equity Private Placement Large Shareholders Involved In Chinese Share Market

Since the CSRC promulgated " Management of listed companies to issue securities" in May, 2006, by the end of 2009, there have been over 400 companies which conducted private placement in the stock market, setting off the current wave of private placement. Nowadays, private placement has already developed into an important form of refinancing for the listed companies in China. However, the motivation of the private placement in Chinese stock market is still more controversial, especially the private placement which large shareholders participate in. Scholars differ in whether the large shareholders'participation of private placement is supporting or tunneling behavior. In addition, the market reaction studies of private placement are mostly concentrated in the short term, lacking of the empirical analysis of long-term market data.This paper selected 130 listed companies as samples which declared to conduct private placement in 2006, using descriptive statistics and event study, carried out an empirical study of the long-term market reaction of the private placement in Chinese stock market which the large shareholders participated in. The results show that the long-term cumulative abnormal return (CAR) of private placement is positive, and the participation and the increasing subscription proportion of large shareholders has a positive impact on the long-term market performance of the companies. In conclusion, the information asymmetry hypothesis could well explain the behavior of large shareholder participating in the private placement in China. The monitor hypothesis could explain the positive long-term CAR of the private placement to some extent, while the defense hypothesis and the tunneling hypothesis could not effectively explain the motivation of Chinese listed companies'large shareholders participating in the private placement. As the private placement is a new phenomenon after the split-share structure reform, and the time span of the long-term market reaction is very long, therefore, the samples this paper can select are fewer, and the further study of the market reaction after the ban period is infeasible. Moreover, the long-term market reaction is affected by multiple factors, the control variables this paper selected may be insufficient, which, to a certain extent, may results in bias conclusions of the study. This is the shortcoming of this paper.