A Study On The Correlations Between Investors Identity Participating In Private Placement And The Performance Of Listed Company

With the improvement of capital market and the introduction of relevant laws andregulation in China, a large number of listed companies have engaged in refinance byissuing new shares. Comparing to Right Offering (RO) and Seasoned Equity Offering(SEO), Private placement (PP) has been prevailing in china from2006when ChinaSecurities Regulatory Commission (CSRC) promulgated the Administration of securitiesissuance of listed companies. from birth PP is chased by the capital, there are funds,securities firms, other institutional investors and retail investors to participate in PP. themain investor in PP include major shareholders, institutional investors, strategic investorsand domestic individuals. When many investors are immersed in the frenzy of PP of newshares subscribed, question about their motivation participating in PP are endless. manycritics pointed out that major shareholders in listed companies to choose private placementis not to support and enhance company performance, but for the potential transfer ofbenefits, and the most institutional investors just seek short-term interests, will notparticipate in corporate governance. so the study into the motivation of different investorsparticipating in PIPE and effect on company performance would be valuable both inpractice operations and theory research.This paper chooses all refinance events from January1,2006to Dec31,2010inChina’s capital market as the samples, base on theory and empirie analysis we draw thefollowing conclusions:(1) investor’s identity matter the discount rate of the issued price,the institutional investors could enhance the issued price significantly when theyparticipate in the offering. institutional investors participating in increased the company’soffering price.(2) investor’s identity matter economic behavior of the listed company, thecorrelation between the controlling shareholders and the economic behavior such as DPSand overinvest is positive, but the regression results are not significant, Related partytransactions have a significant negative correlation with investor’s identity, indicate thatreduce the company’s related party transactions scale decrease after Controllingshareholder participate in PP.(3) BHAR is distinctly negative, but control shareholders orrelated parties participate in private placement, the long-term performance was better than only institutional investors participating in private placement. although BHAR is negative,after the sale restriction, the participating private placement investors obtain higher yields,but small shareholders who did not participate in private placement have little or negativerate of return. Studies have shown that institutional investors in private placement ismainly the pursuit of short-term interests, to obtain excess returns by the discount, will notparticipate incorporate governance, have no effect on the company’s performance. andsuggests that the main aims of majority shareholders’ participating in PP are solidifyingcontrol rights and reducing related party transaction in order to improve listed companies,and meanwhile they wish to gain more profits in the future by the growth of the companynot just the excess returns by a higher offering discount.