Research On The Price Discounts And Short-term Market Reaction Of The Private Placements

In 2006, China Securities Regulatory Commission (CSRC) issued“Measures for the Administration of the Issuance of Securities issued by Listed Companies”, of which the biggest reform lies in the changes on the requirements for the private placement (also known as non-pubilc off erring). The new regulation lowers the requirements for private placement by listed companies and simplifies the procedures thereof.By 2009, the private placement by listed companies has become the main way for refinance. Just up to the first half year in 2009, the number of the companies that have completed the private placement procedure, way more than that completed the allotment and issuance, has already reached 49. Going through the whole year 2009, the gross amount of financing obtained by private placement is even close to the amount of that by IPO financing, and the private placement is more and more connected with the Holistic Listing and the asset restructuring. The Private Placement is gaining enough attention both from the theory circle and the practice circle.Among the issues on the private placement, the most remarkable one is the discount. The so-called discount means designated to the placement process, the stocks are issued at a price that is below the market price at the issuance. Abroad there are four schools engaging the study of this issue, they are school of management opportunism hypothesis, school of monitoring costs compensation hypothesis, school of information asymmetry hypothesis and school of the liquidity-constrained hypothesis, all hypotheses base on the theory that the management and the shareholders have conflict of interest against each other. However, the reality in China is that, due to the dominance there is usual a high degree of ownership concentration in the capital market, and the main conflicts of interest raises between the major shareholders and the minority shareholders. Therefore, the conclusion of the abroad study will not be be applied in China.This paper will divide institutional investors into financial investors and strategic investors, by analyzing the inherent interest demands of major shareholders, financial investors and strategic investors in different circumstances, we find that the major share holders are with a motivation of cheap issue, by cheap issue, they can transfer the wealth of listed company, and occupant the interests of minority shareholders. Financial investors and major shareholders have the possibility to achieve the same interests. Strategic investors and major shareholders have certain conflicts in interest. By analyzing the discount, we find that discount rate is closely related with subscriber identity, so this paper studies the relationship between short-term abnormal return and discount rate in further.This paper selects the data during January 1,2008 and September 30,2010, and then designs regression model, using empirical analysis to verify the theoretical analysis.This paper is divided into seven parts, the major elements of each part are as follows:The first part is an Introduction, it describes the background, purpose, research ideas and research methods of this paper, and draws the logical framework diagram of this paper.The second part is the review on the issues involved in this paper. By reviewing previous research, we are leaded to the innovation of this paper. Specifically, this part firstly sorts out, reviews and briefly comments the literatures about the discount and short-term market reaction of private placement, and then comes to the innovations of this paper, against the deficiencies and limitations of previous literature.The third part is theoretical analysis, which defines the relevant concepts. By analyzing the purpose to participate in the private placement and the inherent interest demand of different types of investors, we divide private placement into four categories, then deduces them in theory.The fourth part is the hypothesis. Through the establishment of simple theoretical models, we discuss the discount levels in different circumstances, and then propose relevant assumptions. Finally, we analyze the short-term market reaction of capital market on different types of private placement in further and propose relevant assumptions.The fifth part is the research designation, which explains the basis of sample selection, variable definition, measurement, model designation. According to short-term market reaction and discount, we design two models for the analysis below, which lays the foundation for the empirical results.The sixth part is the results of empirical analysis. On the basis of empirical analysis, we test the hypothesis that put forward earlier with the results of empirical analysis.The last part is the conclusions and policy recommendations of this paper. It summarizes the study results of the norms part and empirical study part, gives theoretical explanation, policy recommendations, and proposes the limitations of this paper.The main contribution of this paper: Firstly, we reach the conclusion that not all of the institutional investors will have checks and balances on the major shareholders. Because of the motives of institutional investors in private placement is different, the checks and balances on major shareholders is different.Secondly, this paper further confirms by empirical study that, there is negative correlation between the discount rate of private placement and the cumulative abnormal return of short-term market.Thirdly, this paper further confirms by empirical study that, when holistic listing or assets subscription existed in private placement, in the selected time window, the cumulative abnormal returns of listed companies is positive, that is to say, there is a good response in short-term market.The inadequacies of this paper:Firstly, the samples of this paper are small. Because the "Measures for the Administration of the Issuance of Securities issued by Listed Companies" is issued in a short time and my own ability of information collection is limited, the number of samples of this paper is small, to some extent; this may affect the results of this study.Secondly, the related data is difficult to collect. Because it is hard to find the book value of liabilities which matches the private placement announcement date, there will be some errors in calculating the market value of listed company on announcement date.Thirdly, national economic adjustment policies have a great impact on the choice of data. China suffered a huge financial crisis since 2008, so there may be great differences in the data of 2008. Meanwhile, in order to address the financial crisis, the state has adopted some policies related to adjust the macroeconomic, so some data may be affected by policies, and will be lack of objectivity.