Private Placement Of Listed Companies And Long-term Performance Of Stock

Capital is one of the most important factors for the survival and development of companies. When facing the investment opportunities, the companies need corporate financing to obtain funds and finally gain benefits for shareholders and investors. However, due to the limitation of the internal financing, the companies may need more funds from external financing. The external financing for listed companies are various, including loans, corporate bonds, private equity placements. Recently, benefit from the advantages of fast approval, low threshold, low distribution costs, private equity placements has become the most popular way of equity refinancing in China. In 2015, China’s A-share market raised 1.2 trillion from the private placements, which is far more than the IPO and other equity refinancing ways in the frequency and scale of financing.Private equity placement is a new way for equity refinancing in China. The ’"Measures for the Administration of the Insurance of Securities by Listed Companies" in 2006 is the first official document that introduces private equity placements and its release procedures and requirements. Private equity placements can help group company overall listing and financial restructuring. Because of the important position of private equity placement in China’s capital market, it is important theoretical and practical significance for us to understand the behaviors of listed companies in private equity placements. The recently foreign research shows that the long-run performances of listed companies’stock after private placements become weak, but some domestic researchers got different ideas.Due to the lack of relevant data, domestic scholars focused on the private placement in short-term studies, such as motivation research, short-term effect, issued at a discount. But the impact on the company’s private placement is a long process. The results of foreign scholars show that long-term effects are negative, and the explanations of this phenomenon are from the investor sentiment, the window of opportunity hypothesis, earnings management hypothesis reverse aspects. The results of domestic scholars have been different conclusions, however. Based on the important position of private placement equity financing in China’s capital market, it is very important research significance for the study of long-term effects for the private placement.This paper will use statistical analysis and empirical analysis to find the long-run post-issue abnormal returns of listed companies. Meanwhile this paper will study its impact of long-run performance from the perspective of industries and investors. Firstly, use two methods to calculate the long-term abnormal returns by CAR and BHAR which are used by foreign research. Then, divide listed companies into different groups by industries and investors. After study, this paper finds that long-tern abnormal returns of post-issues listed companies are significantly negative. The long-run performances of listed companies are better when existed shareholders participate in the private placements. This indicates that the information asymmetry hypothesis can explain this phenomenon. Then this paper divides the listed companies into two groups based on whether the company is high-tech or traditional manufacturing industry. Finally this paper finds there are no significant different performances of two groups. The paper does more researches and finally finds that different industries have different impacts on long-term abnormal returns.This paper has six parts, and each part’s content is as follows:Part 1:Introduction section, includes research background, purpose, and method used in research.Part 2:Theoretical analysis and literature review, reviewing the motivation of private placements, short-term announce effect, discount issue, and long-run performance of post-issue listed companies.Part 3:Introduce historical evolution and background of China’s private placement, and the advantages of private placements compared to other equity refinancing.Part 4:The design part of empirical analysis, raising three hypotheses in accordance with theoretical analysis, choosing the samples of listed companies, explanatory variables and control variables, and constructing regression model.Part 5:The empirical part of this paper, investigating the long-term abnormal return by post-issue listed companies, as well as different investors and industries.Part 6:Conclusions and policy advices. Policy advices are provided from three aspects:Encourage exsited shareholders to participate in the private placement, improving governance structure. Improve the information disclosure system to alleviate the problem of asymmetric information between investors. Encourage high-tech enterprises to participate in the private placement.Through statistical and empirical analysis, this paper gets the following conclusions:(1)The long-term abnormal returns after the private placement of listing companies in our country is negative. (2) Large shareholders involved in the private placement of long-term abnormal return rate is higher than the only institutional investors involved in the case. (3) There is no significant evidence that the long-term abnormal return rate of high-tech enterprises is higher than that of traditional enterprises. But there is a difference between the long-term abnormal returns after the private placement of listing Corporation in different industries. Information asymmetry is an important reason that leads to the difference between the long-term abnormal return rate of the internal and external investors.This paper has the following innovations:(1) This paper uses two different method to calculate the long-term abnormal returns by CAR and BHAR in order to get stable consequence. In this paper, the selected samples covered the samples from 2006 since the start of private placements in China to 2012. In addition, this paper calculates three-year abnormal return of post-issue.(2) Innovation on research:Focus on the industries’impact on long-term abnormal return.