Financial Financing Type Directional Issuance Announcement Effect Empirical Research

As a new equity financing method, Private Placement has enjoyed high favor among the listed companies&developed fast due to the simple auditing procedure, low cost of raising funds&high success rate of issuing etc. since the Administrative Measures for the Issuance of Securities by Listed Companies came into existence in2006. Due to the abnormal acts in China stock market, the stock price often fluctuates unusually several days before and/or after the private placement announcement day. This impressed people intuitively that there exists obvious private placement announcement effect in China stock market. This paper expects to answer the following four questions via combining the related studies in China&abroad:Is there any obvious Private Placement Announcement Effect in China stock market? How big is the effect? How about time distribution of the effect? What are the factors that influence the Private Placement Announcement Effect in China stock market? In order to answer these questions, this paper theoretically explores&empirically tests the Private Placement Announcement Effect of listed companies in China stock market&the factors influencing the Announcement EffectThis paper firstly reviews the basic introduction of development history, laws®ulations, flow, modes etc. about private placement in China. Then the paper carries out case studies on listed companies. There are665listed companies launched private placement from February1st of2006to June30th of2011. This paper studies250listed companies that only did private placement to institutional investors under the financial financing mode. The paper first studies if there are positive announcement effects around the announcement day of the private placement draft plan via using the daily average abnormal return&cumulative abnormal return. Then it proposes the factors that might influence the announcement effect&build a model based on these factors to test it empirically. The paper gets the following conclusions:There exists obvious Announcement Effect of the private placement under the financial financing mode to institutional investors in the A share market. The empirical tests show that the peak value of cumulative abnormal return appears on Day0&Day8, being2.62%&2.83%. The daily average abnormal return starts to become positive Day15. The positive value becomes most obvious on Day-2&Day0, being0.33%&1.18%. The daily average abnormal return value is obviously minus, being-0.76%&-0.35%. It then becomes positive again.After empirically studied the7factors that might influence the announcement effect, the paper concludes that return or equity (ROE)&the stock market trend during the private placement period are most correlated with the announcement effects. That is the higher is the ROE in the sagging stock market, the higher is the cumulative daily abnormal return. This has some guiding meaning in terms of investment.The paper proposes two suggestions based on the conclusions. First, listed companies must follow standard information disclosure system during the private placement process to reduce inside trading. Secondly, suggest medium&small investors to give up arbitrage practices based on private placement announcement effect, since the most obvious announcement effect of private placement appeared on2days before the announcement day, which is very difficult for medium&small investors to predict.