Research On The Relationship Between Private Equity Placements And The Long-term Stock Price Performance Of The Listed Companies

Until May 2006, China’s Securities Regulatory Commission officially issued “Administrative Measures for the issuance of securities of listed companies”, which officially started the development of the private placement. After that, the private placement developed rapidly and it becomes the main way of equity financing on China’s capital market in just a few years. Since the private placement is so welcome in listed companies, what makes it so popular? Based on the sample data of listed companies’ private placement, this thesis conducts a research of the popularity and significance of the private placement.This thesis analyzes the relationship between private placement of new shares of listed companies and in China’s long-term stock price performance in China. In short-term, the announcement of private placement gives a positive signal to the market: the listed companies raise funds they need to expand investment through the way of private placement. In addition, the private placement can also be used to improve the corporate governance structure by introducing institutional investors, solve the problems of inadequate investment and high agency costs caused by information asymmetry and then enhance the value of the business. Domestic and foreign scholars have reached a consensus in the short-term effects of the private placement, that the private placement of listed companies can contribute to the increased of short-term stock prices( ie positive announcement effect). However, if using the same way when analyzing the impact of long-term stock price there will be serious discrepancies. Some scholars believe that through the private placement listed companies are able to obtain the cumulative excess return, while some scholars have found that after the private placement, the share price of listed company tend to be weak. In the basis of literature review and the related theories, this thesis have found some results:( 1) as for the private placement of major shareholders and related parties, its share price performance is usually good, however, it is not good for the share price performance of the private placement by non-directional major shareholders and related parties. This shows that when the company has an excellent asset or good investment opportunities, the major shareholders and related parties have perfect business information, the private placement will be their first subscription so as to obtain greater benefits in the future appreciation of the enterprise, meanwhile, in the subscription the major shareholders and related parties can increase their control for listed companies.(2) The increase of ownership concentration can promote the convergence of major shareholders and Listed Companies, reduce costs of supervision and management and then improve the performance of Listed Companies. But the degree of ownership concentration is not the higher the better, introducing institutional investors can make the value of the company higher.(3) The short-term announcement effect of listing Corporation is positive, but later the stock price decreases with the decrease of investment enthusiasm. The price performs poorly in the subsequent period and the rate of cumulative abnormal return is cumulative abnormal return is Less than zero.Based on previous theoritcal analysis, the thesis takes as samples listed companies who carried out orientate increase in issue from 1.1.2010 to 12.31.2010, analying the long-term effects of different increase elements on listed companies in China in terms of general and classified angles, in which the analysis consists of orientate increase bodies, diferent increase objects, different fund raising purposes as well as long-term effects of such a way of increase by shareholders and involved parties to listed conpanies. At the end of the thesis, the auther testfies his analyzing result and also makes a appropriate add to the contents.Here is the main structure of the thesis: the first chapter is the introduction part, which introduces the background, significance, technical routes and methodology of the analysis. What’s more, this chapter makes a general review abroad and at home, and then stating the innovating point of this analysis. In the second chapter, the author introduces some theories of orientate increase related to the thesis. Chapter three makes an conclusion of orientate increase situation nowaldays in China and then a comparasion and contrast among different fund raising methods. Furthermore, the thesis also analyzes the advantages and features of newly increased shares, and based on that, the author states the motivation of orientate increase in new shares. Chapter four carries out an emperical analysis on the effects on share prices by orientate increase among listed companies in China. What’s more, based on sample data, the effects to long-term share price by different increase elements are also analyzed. Chapter five makes an conclusion and comes up with some suggestions on the basis of previous theorical and empiricial analysis.