The Return on Private Placement in Small Public Equity
Laval University; Center for Interuniversity Research and Analysis on Organization (CIRANO); University of Lille II - European Center for Corporate Control Studies
Canada Pension Plan Investment Board; Caisse de Depot et Placement du Quebec (CDPQ)
Laval University; Center for Interuniversity Research and Analysis on Organization (CIRANO); European Center for Corporate Control Studies
May 4, 2011
Private placements provided by institutional or individual accredited investors are becoming an important financing tool for small public firms worldwide. However, private placement issuers offer, on average, poor returns. We explain this puzzle using 2,987 traditional private placements by Canadian small public firms over a decade. We observe significant long-run post-issue underperformance using a classic factor pricing model. This underperformance is partially erased when the returns are adjusted to consider the high level of investment by the issuers, and to include the discount granted to private investors. We split the sample by the glamour/value dimension and by the firms’ investment activity. Only glamour firms with high investment activity underperform in the long run. Private investors obtain positive returns on placements in value and high investment firms. However, they overestimate investment projects of glamour firms.
Number of Pages in PDF File: 33
Keywords: PIPEs, Private Placement, Canada, Long-Run, Underperformanceworking papers series
Date posted: November 21, 2010 ; Last revised: May 12, 2011
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