A Study On Discount Of Private Placements Based The Perspective On Tunneling Behaviors Of Major Shareholders

After the Split-share reform, private placements are spring up all over Chinesecapital market. Private placements have become the most popular equity financing.Because private placements have advantages, such as simple issue procedure, lowissue qualification, low issue cost, no raise of the market expansion pressure andpromoting companies listed as a whole. Although the investors of private placementare only a few and the issue scale is a great quantity, it impact wealth distributionbetween new shareholders and old shareholders. And minority shareholders have norights in this process. The issue price and the subscribe ration decide the wealthdistribution. How to firm issue price is critical factor, but Chinese capital market exitshigh discount. Maybe the phenomenon is related with tunneling behaviors of majorshareholders. In China the development of private placements is still in the initialstage, there is no improve and perfect institution. Furthermore many companies exitcontrolling shareholder and the market circumstance is special, maybe privateplacements become another more covert channel to tunneling benefits for majorshareholders following related transactions, high dividends, illegal guarantee etc.The paper mainly studies the tunneling behavior of major shareholders anddiscount rate in private placement. The data sample is form Shanghai and ShenzhenA-shares market2006-2011, removed no participation of major shareholders sample.Firstly, the paper deducts the wealth redistribution model in private placement;secondly analyzes tunneling motivations of major shareholders; then analyzesinfluenced pricing factors on basis of major shareholders’ tunneling behavior.Through the statistical analysis, we know major shareholders’ shareholdingpercentage is increasing after private placements, and the average discount ratio is34.08%. The discount ratio is higher when the percentage of major shareholderssubscribe for new shares is more than before, the average discount ratio is about39.665%. Through multiple regression and empirical test, we come to conclusion--themotivation of major shareholders is significant positive correlation with time intervalform pricing reference date to the first issue date and major shareholders’ subscribingpercentage; it is significant negative correlation with ownership concentration andseparation of two rights. Also discount ratio is significant positive correlation withinvestor type and major shareholders’ subscribing percentage; it is significant negative correlation with information asymmetry and ownership concentration. Finally thepaper raised some suggestions on resolving tunneling behavior in private placement,in aspect of improvement of pricing mechanism, information disclosure mechanismand investor protection legal system.