A Study Into The Financing Efficiency And Aftermarket Performance Of Private Placement In China

With the improvement of capital market and the introduction of relevant laws and regulation in China, a large number of listed companies have engaged in refinance by issuing new shares. Comparing to Right Offering (RO) and Seasoned Equity Offering (SEO), Private placement (PP) has been prevailing in china from 2006 when China Securities Regulatory Commission (CSRC) promulgated the Administration of securities issuance of listed companies. According to CCER, 422 listed companies had executed 502 refinance from January 2006 to December 2009, raising 808.7 billion Yuan in total. Among them, PP had risen 402 times, accounting for 80.08% of the total refinancing; financing amounted to 648.4 billion Yuan, accounting for 80.18% of the total refinancing. Obviously, PP of listed companies has become a major form of refinancing.As the listed companies immerse in the PP financing frenzy, question about the PP are endless. Many critics point out that as the relevant domestic legal system is imperfect, coupled with high ownership concentration of the stock market, listed companies'PP do not based on a higher efficiency, but the potential for transfer of benefits of PP. Therefore, this article raises a study into the efficiency and market performance of Chinese listed companies'PP.This paper chooses all refinance events from 2006 to 2009 in China's capital market. Firstly, we compare refinancing efficiency of PP, RO and SEO to examine whether PP have efficiency advantage. Studies show that the cost is lowest for RO. PP, compared with the RO, the efficiency disadvantage is not significant, but the PP is more effective. This paper particularly examines discount rate of issuing price of PP. Study find that the discount rate of PP evidently relate to the type of investor. The discount rate for related investors is higher than the discount rate for non-related investors, and the difference between the nominal discount rate and the real discount rate is larger. This reveals the existence of tunneling motive in PP market. Finally, we test the PPs'long-term and short-term aftermarket performance. Studies indicate that the short-term aftermarket performance of internal investment is better than the external investment, and the short-term aftermarket performance of PP with related investors to participate in is better than the PP without related investors. The long-term aftermarket performance of internal investment PP is superior to external investment-oriented PP. The study also find that the one-year aftermarket performance is positively related to the real discount rate of PP, and the accumulated long-term return is negatively related to the nominal discount rate of PP, suggesting that tunneling of listed companies to some extent undermine the value of company.