The Long-term Price Effects Of Private Placement Of Listed Companies In Our Country

Private placement is one of a few important ways of equity refinancing for listed companies. Since2006private placement has become the dominant way of equity refinancing for Chinese listed companies. Therefore it is of significant theoretical and practical value in understanding the private placement behavior and the securities market behavior and in guiding real-world securities investment to research the long-term post-issue abnormal returns of listed companies. Foreign research found that the long-term post-issue abnormal return for companies issuing privately is significantly negative, domestic research found that the long-term post-issue abnormal return for domestic companies that issue privately is also significantly negative, and that long-term post-issue abnormal return for companies that issued to related parties like the existing shareholders is significantly higher than that for companies that issued to unrelated parties like institutional investors.The research in this paper centers on the long-term post-issue abnormal returns of companies that conducted private placements, and studies it from the perspective of investors and the growth opportunities of the issuing firm. First the paper used two forms of returns to calculate the long-term abnormal returns:the Cumulative Abnormal Return and the Buy and Hold Abnormal Return. In calculating the buy and hold abnormal returns we used three different sets of rules to select the control firms. The paper finds that the long-term abnormal return for Chinese listed firms that conducted private placements is significantly negative. The paper segments the sample companies into two groups based on whether the companies issued to related parties or to unrelated parties. Then the paper studies the long-term post-issue abnormal returns of the two groups and finds that there is no significant difference between the long-term post-issue abnormal returns of the two groups. The paper segments the sample companies into two groups based on whether the company has good or bad growth opportunities. Then the paper studies the long-term post-issue abnormal returns of the two groups and finds that the long-term post-issue abnormal returns for companies that have good growth opportunities is significantly lower than that for companies that have bad growth opportunities.The paper explores the causes and reasons behind the conclusions reached. Regarding the long-term post-issue abnormal returns of companies with different investors, the paper finds that the asymmetry information theory cannot well explain the difference between the long-term post-issue abnormal returns of companies that issue to different investors. And the paper postulates that the difference might be due to the different monitoring effect exerted by different investors. Regarding the different long-term post-issue abnormal returns, the paper studies the operating performance and capital expenditures around the time of the private placements. The paper finds that the operating performance is good and the capital expenditure is high before the private placements and they declined significantly after the placements. Therefore the paper arrived at the conclusion that in China around the time of the private placements there also exists investor-over optimism, which caused the significantly negative long-term post-issue abnormal returns for all issuing companies and the fact that the stock of companies with good growth opportunities performs worse than that of companies with bad growth opportunities.