Empirical Study On The Cut-rate Pricing Of Private Placement Which Substantial Shareholders Participate

Western research on private placement of public firms was started by Wruck(1989). He studied the firm value of private placement in terms of equity ownership. Then, Hertzel and Smith(1993) documented their viewpoint of a symmetric information to explain private placement of public firms. These two hypotheses then became the main explanations for the research of private placement by public listed firms. In contrast, because of the lack of the data, the relevant research is not yet perfect in China.The equity structure of listed companies is very closely-held in China. So substantial shareholders, also known as controlling shareholder or majority shareholders, may use the refinancing of listed companies for expropriate the interest of minority shareholders. China's capital market is not mature enough now, especially in the act of private placement. This is bound to cause a lot of questions on the issuance of private placement, and the most important problem of all the questions is the cut-rate pricing, which most investors are concerned about.Analyzing the data from 2006 to 2010, we can find that the average rate of discount which substantial shareholders participate is about 25.6%, which is dramatically higher than the rate of discount of pubic placement which not. So, what are the factors leading to the rate of discount of private placement so high? This is also the main issue which the author is trying to study in this paper.This paper includes five parts:First of all, introduce the background of this paper, explain the reason why I choose this issue to study and the method how I proceed my study.In the second place, review the precedent research paper on private placement home and abroad.The third, introduce the development of capital market in China.The fourth, analyze the factors which affect the rate of discount of private placement. The fifth part is the empirical study part, it makes the multi-linear regression model to verify the truth of the assumption, according to the figures from 2006 to 2010;Finally, makes the conclusions and gives some advices according to my study.The main contributions of the paper are:(1)Revealing the reasons of high rate of discount which substantial shareholders participate in the capital market of our country through analysis of the factors affecting rate of discount;(2)Moreover, differ the figures before and after CSRC enacted The Implementation Details of Private Placement by Listed Companies, for the sake of the affection of the policy to the multi-linear regression, and bring the change of policy into the model;(3)Finally, provide advice to helping the impact of pricing.