Research On Contributing Factors Of Private Placement Discount In China

As one of the refinancing methods in China's equity capital market, private placement has been gradually concerned by more and more people until 2006. The development about private placement can be described in full swing during the past 3 years, especially in 2014 and 2015. According to the latest statistics, the total amount of raised money has reached 1.246612 trillion yuan in private placement market in 2015, and the total number of private placement companies has been up to 827. Compared to the amount of raised money in 2013, the growth rate in 2014 has reached 91.99 percent; Compared to the amount of raised money in 2014, the growth rate in 2015 has reached 81.81 percent. Thus, the development of the private placement market is very rapid. Actually, the private placement market cannot be so hot without the participation of investors.Along with China's booming private placement market, more and more scholars pay attention to the private placement boundary, and a focus of which is the offering price about issuing. From the current situation in China, the private placement discount is different with different participants. Currently, the main involvement of the private placement are large shareholders and institutional investors. According to the existing research, the private placement discount for large shareholders is higher than that for institutional investors. Scholars have come up to some representative theories, such as tunneling hypothesis, information asymmetry hypothesis, liquidity compensation hypothesis. Therefore, to find the suitable hypothesis for China's discount explanation and classify the participants are very meaningful.This paper has a research on contributing factors of private placement discount in China, based on the view of large shareholders and institutional investors. There are three following studying questions. Firstly, are there existing private placement discount differences between large shareholders and institutional investors? Secondly, what are the contributing factors of private placement discount for large shareholders? Thirdly, what are the contributing factors of private placement discount for institutional investors? Therefore, the logic of this paper is as follows:beginning with the private placement discount literature, and then classify the participants, finally have an empirical analysis.On the basis of previous studies, this paper has selected tunneling, information asymmetry and liquidity compensation theories to analyze private placement discount in China. The sample data is from Shanghai and Shenzhen A-shares market between 2009 and 2014, and the conclusions are as follows:First of all, from all 381 samples, the empirical results show that there exists a significant difference on private placement discount between large shareholders and institutional investors. The private placement discount for large shareholders is higher than that for institutional investors. For this conclusion, this paper considers the liquidity cost factors, and the empirical results show that the liquidity cost factors have impact on private placement discount both for large shareholders and institutional investors, and the impact is stronger for large shareholders than that for institutional investors.Secondly, in addition to liquidity cost factors, the tunneling also has impact on private placement discount both for large shareholders. From the 171 samples, the empirical results show that the higher concentration of ownership, the more intense motivation for large shareholders'tunneling, and therefore the higher private placement discount. The conclusions are consistent with many scholars.Lastly, in addition to liquidity cost factors, the information asymmetry also has impact on private placement discount for institutional investors. From the 182 samples, the empirical results show that information asymmetry has significant impact on private placement discount for institutional investors. This phenomenon is consistent with China's equity capital market.The main contributions of this paper are as follows:First, the majority of scholars who studying contributing factors of private placement discount in China are from the perspective of large shareholders' tunneling, rarely taking into account the liquidity cost factors, let alone quantitative analysis. However, due to the limited sales time, the liquidity cost factors for private placement discount cannot be ignored. Therefore, this paper has included the liquidity cost factors to analyze the contributing factors of private placement discount for large shareholders, which enriches the existing literature for the study of this field.Second, most scholars who studying contributing factors of private placement discount in China are from the perspective of large shareholders, while ignoring another participant, namely institutional investors. At present, the literature of private placement discount concerning institutional investors is relatively small, and it is mainly based on asymmetry information. However, this paper has included the object of institutional investors, and took into account the liquidity cost factors of private placement discount for institutional investors. Therefore, this paper enriches the existing literature for the study of this field.Last, in terms of selecting the data, this paper has selected the sample from 2009 to 2014, which has a relatively longer time span and more samples, therefore, the data selection is more objective.This paper also has two shortcomings as follows:On the one hand, with regard to measuring variables of liquidity costs, this paper only select stock volatility as measurement, at this point, the chosen indicators are not rich. On the other hand, this paper does not classify the quality of assets. Therefore, scholars can continue to conduct further research and analysis in this field.