Research On Announcement Effect And Transmission Effect Of Public Offering And Private Placement In China

A lot of listed companies have raised funds by public offering and private placement from2006to2011, especially after May8th,2006, when China Securities Regulatory Commission launched the "Administrative Measures for Listed Companies’ Stock Issuance", an increasing number of listed companies have accomplished private placement because of its easy operation and low requirement.The stock price depends on the expected return which the stock company brings to the investors. And the expected return itself relies on the message investors get. So the refinancing announcement information may impose an influence on the stock price.The stock price of Qingsong Building Materials and Chemicals (600425) had decreased by30%from two days before the public offering announcement date of the Shareholders’Board Meeting to two days after it in2007. The stock price of Tianshan Wool Tex (000813) had increased by30%from five days before the private placement announcement date of the Directors’Board Meeting to three days after it in2011. Xiamen Tungsten (600549) had a significant price decrease in the three days after the private placement announcement date of the Directors’ Board Meeting in2006. Xingjiang Chalkis (000972) had a significant price increase in the three days before the private placement announcement date of the Directors’Board Meeting in2006. While at the same time, SDIC Zhonglu Fruit Juice (600962), which was in the same industry and had a similar scale of Xingjiang Chalkis (000972), had a significant price decrease.We wonder whether the announcement information has a significant effect on the price of the refinancing stock and the relative stock or not. Does it have a positive impact or a negative impact? We also wonder that whether the announcement information had been leaked to some certain investors before it was published, and what investment decisions investors can make when they obtain the information.In this paper, abnormal return is used to measure the announcement information on the stock price. We focus on the announcement effect and the transmission effect of public offering and private placement. The announcement effect is defined as the refinancing stock price performances in a short period before and after the announcement date. The transmission effect is defined as the relative stock price performances in a short period before and after the announcement date.At first, we introduce the background and purpose of this paper, and review the foreign and domestic documents about announcement effect. Secondly, we analyze the development status of public offering and private placement in China. Then, and we build an empirical model by using event study method.573Chinese A-share listed companies that issued public offering or private placement announcements during January2006to December2011are selected as sample companies. And573Chinese A-share listed companies that are in the same industry and have a similar scale compared with sample companies are selected as paired companies. In this paper, we choose two event days:the announcement date of Directors’Board Meeting and Shareholders’Board Meeting. We define (-130,-6) as estimation period and (-5,5) as event period. Based on the study above, we analyze the overall announcement effect, announcement effect in different market situation and transmission effect of public offering and private placement.Compared with previous studies, the contribution of this paper is as follows. Firstly, the study of this paper enriches the study of announcement effect of public offering. Secondly, the study on announcement effect in this paper is more detailed. Thirdly, it is the first paper to make a research on transmission effect of public offering and private placement.This paper draws the following conclusions:(1) There is no significant announcement effect on public offering announcement date of the Directors’Board Meeting. However, there is a significant negative announcement effect on the public offering announcement date of the Shareholders’Board Meeting. Such negative effect in the (-5,5) event period can lead to cumulative average abnormal return up to-4.59%.(2) There is a significant positive announcement effect on the private placement announcement date of the Directors’Board Meeting. And the effect on the date of the Directors’Board Meeting outperforms the effect on the date of the Shareholders’Board Meeting. On the one hand, the conclusion proves that investors mainly regard private placement announcement as good news. The investors of private placement are not more than ten and they often have more information about the company than ordinary investors. Their behavior indicates that they are optimistic about the future development of the company. So it has a positive impact on the stock market. On the other hand, it shows that the announcement effect weakens as the process of the private placement goes on.(3) The positive effect of private placement announcement on stock price performance mainly relies on the abnormal return and cumulative abnormal return gained on the announcement date itself and the trading days before it. After the announcement date, the abnormal return is not significant. It indicates that the information of private placement has been leaked before disclosure.(4) In different market situations, there is no significant announcement effect on public offering announcement date of the Directors’Board Meeting. The effect is significantly negative on the public offering announcement date of the Shareholders’ Board Meeting when the stock market is in rising situation or adjustment situation. However, if the stock market is in the falling situation, the effect is not significant. This phenomenon may be explained with the theory of adverse selection and the participation degree of investors.(5) In different market situations, there are some differences in the announcement effect of private placement. When it comes to the announcement effect on the date of the Directors’ Board Meeting, the effect in the rising and falling situation outperforms the effect in the adjustment situation. It may due to investors’different opinions and participation degrees in different situations. When it comes to the announcement effect on the date of the Shareholders’ Board Meeting, there is no significant effect in the rising and falling situation. However, in the adjustment situation, the cumulative average abnormal return in (-5,-3) event period is0.76%. While in (-5,4) event period, the cumulative average abnormal return is-1.42%.This may be explained by the fact that investors change their views about a stock easily in adjustment situation.(6) There is no significant transmission effect when it comes to the public offering announcement. The paired companies can’t gain average abnormal return or cumulative average abnormal return in the event period.(7) There is significant negative transmission effect when it comes to the private placement announcement. The paired companies can gain significant negative cumulative average abnormal return in the event period on both announcement dates. Especially, the cumulative average abnormal return of sample stocks and their paired stocks go up and down oppositely on the announcement date of the Directors’ Board Meeting.Based on the conclusions above, this paper gives some suggestions to the security supervisory department and investors. For one thing, this paper points out that the stock market can be more effective by strengthening the regulation of information disclosure and improving the penalties for insider trading. For another thing, this paper suggests that investors should consider the refinancing information, the specific situation of the portfolio and some other factors in decision-making to reduce blind investment.