Private Equity Placements,Block Shareholders' Participation And Market Reactions

Private equity placement(PEP)is a follow-on financing method that listed companies issue shares non-publicly to specific investors.It is the most popular refinancing method since it has simple and efficient issuing procedure,low financing cost,high success rate and high approval possibility by government and regulators.After the accomplishment of China's Split-share Structure Reform in 2006,PEP has formally become the important refinancing method for listed companies.Recently,under the encouragement of policies on Mergers&Acquisitions(M&A),Chinese capital market has witnessed an increasing trend on the number of PEPs.The number of PEP plan announcements in the Main Board(A-share)in 2015 is 2.2 times as that in 2006 and the announcements in all boards(A-share)in 2015 is 4.4 times as that in 2006.The percentage of PEPs with the participation of block shareholders fluctuates between 40%to 50%.Block shareholder is an important subscription object,which has attracted much attention on how the market treats its participation in PEPs.In the capital market with asymmetric information,block shareholders participating in PEPs could solve the problem of minority shareholders' information dependency and supervise managers' behavior.However,they could also have the motivation of tunneling,which could damage the interest of minority shareholders.Therefore,it is worthwhile to study whether the market could react reasonably based on the existing information of PEP announcements.Meanwhile,under the background of M&A policy and the new PEP regulations,investigating the effect of block shareholders' participation on the abnormal returns of PEP would be helpful to judge the operating result of the existing policies.This study has practical significance on regulating block shareholders' behavior,protecting minority shareholders' interest and increasing market transparency.From the perspective of information asymmetry,this dissertation investigates the effect of block shareholders' participation on abnormal returns under the situation of different degrees of information asymmetry,different PEP purposes and different participation patterns.When analyzing the effect of block shareholders' participation patterns on abnormal returns,this dissertation considers the influence of different PEP purposes on block shareholders' cash subscription or asset injection.Based on the sample of 681 PEP plan announcements from Chinese Main Board(A-share)from 2013 to 2016,this dissertation takes the abnormal return estimated by Short-Term Event Study as dependent variable.Then factors such as block shareholders' participation,degree of information asymmetry,financial and M&A purpose,block shareholders'cash subscription or asset injection would be analyzed by employing group tests and multiple regressions.The empirical results indicate three conclusions.First,companies with relatively high information asymmetry degree have lower abnormal returns.If block shareholders participate in PEPs of these companies,the abnormal return would be increased.On the contrary,companies with relatively low information asymmetry degree have higher abnormal returns.If block shareholders participate in PEPs of these companies,the abnormal return would be reduced.Secondly,PEPs with financial purpose lead to lower abnormal returns.When block shareholders participating in these PEPs,the abnormal return would be further reduced.PEPs with M&A purpose lead to higher abnormal returns.When block shareholders participating in these PEPs,the abnormal return would be further increased.Thirdly,if block shareholders use cash to participate in the PEPs with financial purpose,the abnormal return would be reduced.If block shareholders use asset to participate in the PEPs with M&A purpose,the abnormal return would be increased.After changing the dependent variable and altering data processing method,consistent conclusions would be made as above,which means that the research result is robust.This dissertation enriches research perspectives of the existing literatures in two aspects.Firstly,this dissertation analyzes the signaling effect of block shareholders'participation from the perspective of information asymmetry.Secondly,this dissertation combines PEP purposes with block shareholders' participation patterns and explains the effect of block shareholders' participation patterns on the abnormal returns of PEP announcements under different purposes.The empirical results would be useful to make policy recommendations on M&A policy and the new PEP regulations.