Empirical Research On The Shareholders’ Wealth Effect Of Private Placement And Public Issuance In China’s Listed Companies

Refinancing of listed companies is an important research topic in corporate finance. The primary means of Listed Companies refinancing is the allotment and issuance, and issuance is divided into the public issuance and private placement in two ways. Allotment is the only way of equity refinancing for listed company before1998, and public issuance began to be adopted until1998.Public issuance is favored by the listed companies since then, and gradually replace the allotment. Along with the number and amount of public issuance increase yearly, domestic scholar began to do research on the issuance announcement effect on the public issuance. These studies are mostly concentrated in the short-term announcement effect on public issuance and concluded that the announcement effect for the public issuance is negative. Most of the studies are only for private placement, or only for the public issuance, few scholars studied announcement effect both on public issuance and private placement, especially long-term performance.Will the announcement effect be different between public issuance and private placement? Will the long-term performance be different? This paper first discusses the theory of the private placement and public issuance, then verified the conclusion by empirical testing of China’s stock market experience data. This paper first conducted literature review, then analysis of the motivation of the private placement and public issuance in China’s listed companies. We use of regulatory theory, asymmetric information theory, and the defense hypothesis, underwriter fair hypothesis, circulation and cost hypothesis to explain the reasons. Through the theoretical and empirical analysis, we get the following conclusions:(1) In the short term, as opposed to declare publicly issuance, listed companies declared private placement can obtain significantly positive effect on shareholders’ wealth, while declaring public issuance the short-term wealth is negative. Although a small part is positive but not significant. It shows that the market recognized the private placement of equity refinancing.(2) In the long term, for1-3years, China’s listed companies obtain negative long-term excess return after declaring public issuance. But after the listed companies declaring private placemen, they have positive long-term excess return. This indicated that the private placement refinancing is favored by investors for it can protect the long-term wealth of investors. Through this research, we can better understand the mechanism of Chinese listed companies equity refinancing options, enhancing understanding and awareness of refinancing, which provide a theoretical basis for China’s securities regulatory authorities to develop financing policies, and also for China’s listed companies financing decision and investors to participate in equity financing to provide a new revelation.This article is divided into six parts:The first part is the introduction, presenting the purpose and significance of this study, writing ideas and research methods. The second part is the literature review, including domestic and foreign research literature review both on private placement and public issuance. The third section analyzes China’s listed companies’motivation of choosing private placement or public issuance. This part theoretically explained the reasons for listed companies to select the private placement or public issuance. The theories include the monitoring hypothesis, the hypothesis of asymmetric information, defense hypothesis, underwriter fair hypothesis, the distribution cost hypothesis. This chapter also compared financing policy, finance industry and size between private placement and public issuance. The fourth part theoretical analyzed why private placement and public issuance can affect shareholders’ wealth of listed companies by the asymmetric information theory and regulatory theory. And we proposed two assumptions:Assumption1:listed companies have positive short-term shareholder wealth (CAR) when declared private placement, and listed companies has negative short-term shareholder wealth when declared public issuance. Assumption1:listed companies has positive long-term shareholder wealth (HPAR) when declared private placement, and listed companies has negative long-term shareholder wealth (HPAR) when declared public issuance. The fifth part is about the empirical research. We test the assumption by using data from China’s securities market. The sixth part summarizes the conclusions of this study, proposed some recommendations and pointed out the deficiencies of this study.