Research On Market Effect Of Listed Company’s Private Placements

Since the reform of our stock market, more channels of recapitalization have been developed beside allotment. And nowadays private replacement has become a popular tool. To settle the conflict between tradable share holders and non-tradable share holders is an important reason for the introduction of private replacement. And the setup of regulation framework stimulates the implementations.Researches indicate that the stock market in China has not reached semi-efficiency. According to the efficient markets hypothesis, investors can still gain excess return through public information. So investors will take action on the announcement of private replacement thus cause the move of stock price. This procedure is so called announcement effect.Researchers home and abroad have done a lot of researches on the stock abnormal returns caused by private placement, which are called stock price effects. However, they rarely divided the effects into two parts-insider trading and announcement, and do empirical study on the factors which caused the effects. By theoretical analysis and empirical researches, most researchers found that private placement could transfer good news to the secondary securities market and bring short-term positive yield-returns. But there are still questions to be answered. What is the effect on the medium-term and long-term returns? Is there any connection between private replacement and the announcement effect? For the reasons that private replacement in China was implemented late and small number of samples could be used to do empirical research, few experts have done demonstration research in this field. Secondly, researchers have used different methods or samples to do studies on the effect of the private placement announcement, to examine whether it is positive or negative, to find which factors caused the effect. But no conclusion can be drawn. Long-term stock price changes can be affected by the stock reform or the private replacement. But it is hard to distinguish them because the close connection. As we know, the main purpose of private replacement is for stock reform and the implementation of private replacement is always companied with the stock reform.In this paper, we examined the effect of insider-trading and announcement on China stock market based on the stock price effect. We also examined the possible impact of difference in company and private replacement.We find out that there is cumulative abnormal return before and after the announcement of the private replacement in a ten-day observation window. Thus we think there is insider-trader effect and announcement effect in China stock market. And then we examined the lasting period of the effect through a significance test of CAR.And we also find out that the purpose or the target or other factors of private replacement can affect the effect. And so does the different company feature.We studied the trend of stock price in100days after the announcement and find that there is no decrease of CAR which indicates that there may be no investors pursuing a short-term return on private replacement.