A Study On Assets Injection Effect In Private Placements Of China's Listed Firms

With the improvement of capital market and the implementation of relevant laws and regulations in China, private placement, which prevails both in numbers and total financing amount, has rapidly evolved into the mainstream form of refinancing. Private placement in China is not merely for the purpose of raising funds, more importantly, it plays an special role in purchasing assets from controlling shareholders and other affiliated parties,in order to minimize related party transaction or to realize holistic listing of relevant assets.Prevailing studies suggest that the agency problem of controlling shareholder imposes negative effects on firm value. Controlling shareholders"tunnel"resources out of firms though their controlling power, thus damage the benefit of minority shareholders. However, anecdotal and empirical evidences also suggest that controlling shareholders sometimes"prop"listed firms. They occasionally transfer private resources into firms to assist them out of financial crisis. This paper theoretically analyses and empirically studies assets injection in China's private placements, based on the theory of"tunneling"and"propping".We choose all private placement events from 2006 to 2009 in China's capital market and divide them into two categories: funds-raising type and assets-injection type. Firstly, we examine and compare the post-performance of two types of PPs and find that assets-injection type significantly outperforms funds-raising type, which reflects"propping"from controlling shareholders. Secondly, we continue to study the factors that influence the performance of assets-injection type both theoretically and empirically. The result suggests that asset evaluation increment ratio is negatively correlated to post-performance, which partially reflects"tunneling"of controlling shareholders. The ownership proportion of controlling shareholders signifies"benefit cooperating effect"on firms. Replacing type of assets injection significantly outperforms purchasing type, which suggests that assets restructuring involving potential controlling shareholders and strengthening market supervision have significant positive effect on firm value. However, whether the assets injected are related to previous main business has no remarkable correlation with firm performance.