Pricing Level And Market Effect Of Private Placement Of Domestic Listed Companies

In recent years, private equity placements have become the most popular way of seasoned equity offering in China’s capital market. This paper examines the private equity placements for project financing purposes. Firstly, factors that influencing the pricing of private equity placements are investigated. In addition to studying the discount phenomenon of private equity placements, the premium of offering price to the base issuing price is first presented in this paper. The paper mainly explores both the discount and the premium from the following aspects:the growth of listed companies, market timing, information asymmetry and investor expectation.This paper makes an empirical analysis on the main factors influencing the pricing of private equity placements according to the sample data of China’s listed companies during2008-2012.6. The major findings of this research are listed as follows:with the appeal for the compensation of information asymmetry of institutional investors (non-affiliated investors), the offering price is affected, and the traditional pricing discount index cannot reflect growth characters. However, a significant positive correlation is observed between the growth of companies and the premium against the bottom issuing price. Meanwhile, both the discount and the premium are highly relevant to investor expectation. Furthermore, better market timing and lower extent of information asymmetry will lead to higher pricing level.This paper also discusses the stock price reaction to private equity placements with industry influences removed. The positive stock price reaction is found to be monotonically increasing with the premium. Specifically speaking, in5or10trading days after the private equity placement, the higher the premium is, the higher the buy-hold abnormal return will be. And both a large-scale subscription and mutual funds’ participation will help to further boost prices. But in the long run, there is no significant correlation between the premium and the long-run market performance.