Research On Discount And Accumulated Exceptional Rate Of Return In Private Placement

Abstract:Private placement is a seasoned equity offering which are sold through a private offering to a small number of chosen investors rather than a public offering. Private placement usually equals to non-public offering of shares in a listed company.And since the reform of non-tradable shares of listed companies in2006,the Private placement becomes more and more important as a way of the listed company refinancing. That why it is worth to pay attention and research the private placement. Private placement is meaningful enough for both the shareholders of listed companies and the investors.The substantial shareholders and related parties, as well as institutional investors are the main purchasers of the private placement. The substantial shareholders have the motivation and ability to influence the price of the equity and the discount of the listed companies. So in this article, we use the historical data to analysis the discount of different main purchasers in the private placement. And we analysis the abnormal return the investors can get during the brief window period in a private placement.In this article, we choose the private placement data from2006to2013. We use the theoretical analysis and empirical test to analysis the main factors that influence the discount in a private placement. The main factors are the participation of the substantial shareholders, the size of the equity value, the proceed and the fraction of the private placement, as well as the price-to-book ratio of the listed company. And if the substantial shareholders become the main purchasers in a private placement, the discount of the private placement will be significantly higher than other situation. And we find that the institutional investors can reduce the discount effectively. And we expound other factors in this article too. We also find that in a period of time during the private placement, the abnormal return is pretty good. The private placement is good for the developing of listed companies. So in our country, we must avoid the unconscionable behavior in the private placement, as well as we should encourage the listed company to refinance through private placement.