The Choice of Equity Selling Mechanisms: PIPES versus SEOS
University of New Mexico - Anderson School of Management
State University of New York at Albany - School of Business & Center for Institutional Investment Management
University of New Mexico - Robert O. Anderson Schools of Management
August 11, 2009
Journal of Corporate Finance, Forthcoming
We examine the firm's choice between an SEO and a PIPE, an innovation in follow-on equity selling mechanism seen in the late 1990s. Our primary finding indicates that the rapid rise of the PIPE market fills the capital needs of firms which may not have access to more traditional alternatives. This lack of access is driven mainly by information asymmetry and weak operating performance. We also show that firms are more likely to choose PIPEs when the general market and the firm's stock are performing poorly. Furthermore, we find that selected firms with access to the public market may prefer a PIPE due to specific cost considerations.
Number of Pages in PDF File: 48
Keywords: Private investment in public equity (PIPE), seasoned equity offering (SEO)
JEL Classification: G10, G32
Date posted: June 3, 2008 ; Last revised: November 8, 2009
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