China A-share Listed Companies Private Placement Research

Western researches on private placement of public firms began from Wruck(1989), in which paper he studied the firm value of private placement firms in terms of equity ownership concentration. And then, Hertzel & Smith(1993) documented their viewpoint of asymmetric information to explain private placement of public firms. These two hypotheses formed the main explanations for the phenomenon of private placement by public listed firms. Researches later draw their meaningful conclusions rooted from these two hypotheses.Since the year of 2006, a fever of private placement by public firms had appeared in China's stock market, and private placement becomes the most important measure to refinance and merger for public firms. However, the relevant researches on this are not perfect right now. Based on the comparison between China and America's private placement market, this paper makes a summarization and empirical study on the private placement in China.Through the statistic, this paper analyzed the price performance of private placement firms. Also, the industrial distribution of the firms is generalized. This paper finds a high price discount following private placement and the speculation on them was so excessive. Public firms executing private placement concentrates in the industry of manufacturing and real estate. Funds raised were mainly used in project investment and purchasing assets from their parent companies. Through the comparison between China and America's private placement market, this paper found the misusing of private placement by public firms in China. Using the general method of motivation study, the paper finds that the traditional classical hypotheses can not well explain the phenomenon of private placements during the past two years in China's stock market. Meanwhile, the paper finds that the phenomenon can be explained by the leverage of placement companies as well as the outstanding shares expansion preference. Using event study method, the paper analyzed the price performance and the medium-term operation performance of private placement firms. A positive announcement effect of private placement and a positive cumulative abnormal return were found after the empirical study. And the public firms that place equity privately experience a better medium-term operation performance after their placement. However, due to the limitations of the event windows and the drawbacks of the event study method, the long run performance of private placement companies remains to be seen. In addition, the positive price performance of private placement firms can not be generalized one-sided because of the bull market period. And this may be a deficiency of this paper.This paper includes the following sections: chapter one described the concept of private placement, domestic and foreign literatures and the study method in this paper; chapter two made an overview of the private placement market of China and American and made a particular comparison; chapter three introduced the apply of private placement in China. Also, some problems were found in China's private placement market; chapter four made a empirical study in terms of the motivation of private placement of public firms in China, the performance of private placement in secondary market, and the operation performance of placing firms; chapter five made a conclusion and drew some policy suggestions.