The Impact Of Issue Price Bias On Long-term Performance Of Private Placements

The private placement has become a hot topic in the researches on listed companies' equity financing.Issuing price is one of discussion focus in researches on private placements.But most existing studies probe into its price discounts from many aspects,and there are less literature related to the deviation between the issue price and the intrinsic value of the stock.Meanwhile,taking the characteristics of Chinese stock market into account,this paper explores the impact of issue price bias on long-term economic consequences and the role played by major shareholder subscriptions and offering purposes in this relationship based on behavioral finance theory.Using a sample of listed firms that completed private placements in 2006 to 2014 in Shanghai and Shenzhen Share-A market,DID method is used to investigate the impact of issue price bias on long-term economic consequences.According to whether large shareholders participate in or not,private placements are further classified into participated type and not-participated type.After comprehensive analysis of group-level regression results,conclusion of this paper is drawn.We have found these conclusions:(1)Private placements will lead to a poor long-term performance,while listed companies,which have higher issue price bias,will have a more obvious decline on their long-term performance;(2)Major shareholders' behavior can affect the relationship between issue price bias and long-term performance.Major shareholders' behavior have different influence on different performance.For participated type,the negative impact of issue price bias on long-term operating performance is more prominent.However,for not-participated type,long-term stock performance have more obvious decline;(3)Similarly,offering purpose also influence this relationship.When private placement is capital-restructuring type,the negative impact of issue price bias on long-term operating performance vanish,but the negative impact on long-term stock price is more significant.Finally,in order to improve relevant decisions during private placements process,this paper gives pertinent suggestions to market regulators.Moreover,this paper analyzes study limitations,for providing some useful suggestions for subsequent studies.