The Informativeness of Offer Characteristics versus Investor Identity in PIPE Transactions

Abstract:     
Investors participating in private placements of public companies (PIPE transactions) learn significant information about the issuing firms by performing due diligence prior to the offerings. Consequently, the announced offering terms such as the offer price and the fraction of the company sold in the offer, along with the identity of the investors participating in the offer, may be informative to non-participating investors. By splitting the sample into groups based on the premium paid by investors in the offer, and using a much larger sample than samples used in prior studies, the study shows that offer characteristics alone can explain the market reaction to the offer and the long-term performance of the issuers. Investor identity has no additional explanatory power. This finding contrasts other studies which suggest that announcement returns and long-term performance can be explained by distinguishing between active and passive investors.

Number of Pages in PDF File: 61

Keywords: Private placements, Long-term performance, Market efficiency

JEL Classification: G14, G24, G32

working papers series