Research On The Impact Of Institutional Investors On The Pricing Discount Of Private Placement

Since2006the SEC issued th《eAdministration of Securities issuance》，companiesin china has shown unprecedented enthusiasm, the private placement becomes one ofmost important of refinancing in recent year. The reason why the private placement ispopular with companies and institutional investors is that it has many advantages.Comparing with Allotment and subsequent offering,the private placement not onlyhas simple issuing procedure, lower financing threshold and less issuance, but alsobrings in strategic investors and absorbs assets to achieve. In the case of privateplacement, the researches have found that the pricing discount is generally existed.Many studies suggest that influence、cost of controlling、information asymmetry andissued object may impact on pricing discount.It is normal that discount existed. TheSEC issued that the formal issuance of not less than90%of the average share price20trading days before,that is to say the discount should be10%. According to researchon pricing discount of private placement,we find that the average discount is morethan20%,some of all is even more than80%. Such high discount not only infringesthe lawful rights and interests of small and medium shareholders and infect thehealthy and orderly development of capital market. When we study on the issuedobject, we often find the institutional investors. Especial in these years,they developmore quickly. QFII also take in private placement. Comparing with the smallinvertors，the instructional investors are advantaged in scale and experience. Someresearch issued on the impact of institutional invertor on pricing discount.International investors reduce the pricing discount. In these research, the institutionalfactor is just one of all factors, they did not make detail research on the impact ofinstitutional investors on discount. This paper research on the pricing discount of theprivate placement combine with related theoretical analysis and empirical results onthe perspective on institutional investors.This paper bases on the listed companies completing private placement fromyear2011to year2012. According to the theory of issued object and intendance,wewill find that the participation of institutional invertors can reduce the “tunnelingeffect” and strengthen the competitiveness among the participants, protecting thelawful rights and interest of small and medium invertors. This paper also study the impact of the type of institutional invertor、the stock holding percent and purchasedpercent on the pricing discount. At last, the author placed a linear regression modelto study those influencing factors.The empirical analysis concludes that:(1) Institutional investors’ participation canreduce the pricing discount of private placement.(2）The more stock holding percentof institutional investor, the lower of pricing discount.(3) The passive may increasethe pricing discount of the private placement.(4) When insurance and brokerparticipate, the pricing will be high,when sino-foreign fund participate, the pricingdiscount will be low. This paper analyzes the influence of main participants on theprice of private placement. Therefore, that has a very positive meaning to investorsand securities regulators.