Research On Influential Factors Of Private Placement Discount In China Market

Since China implemented "Issuance of Securities by Listed Companies" in 2006, the private placement of common stocks of listed companies has developed into the most prevalent financing way in China, and therefore it has become a hot topic in the researches on listed companies’equity financing behavior. According to the existing research results, there are some representative theories, such as tunneling hypothesis, information asymmetry hypothesis, liquidity hypothesis, management entrenchment hypothesis, regulatory costs hypothesis, etc. In addition, many studies have shown that the discount of controlling shareholders is significantly higher than that of institutional investors.Based on Tunneling, liquidity compensation and information asymmetry theory, this paper mainly discusses different discount level between large shareholders and institutional investors in private placement. The data sample is form Shanghai and Shenzhen A-shares market 2011-2013. There are two main issues to be addressed in this paper:first, whether discount rate of controlling shareholder is significantly higher than that of institutional investors and causes of the differences. Different from predecessors’research, this paper will bring liquidity cost into the research framework, analyses the liquidity cost of lock-up period; second, from the perspective of big shareholders and institutional investors, studies the influence factors of discount rate.According to the conclusion of the theoretical analysis and empirical study of this paper, discount of controlling shareholders is significantly higher than institutional investors when they participate in private placement. But the difference is not due to the longer lock-up period of controlling shareholders. Compared with institutional investors, big shareholders focus more on its controlling yields and the company’s long-term development, so discount rate is not sensitive to liquidity cost. In addition, this paper also found that the main factors of the high discount is tunneling behaviors of controlling shareholders, this is consistent with the most scholars’conclusion. For institutional investors, information asymmetry and liquidity cost will affect the discount rate.